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New Member

Deduction for property improvement

I own property, not my home nor  rent home, where there exists a pad for extracting natural gas in which mineral royalties are paid to me.  I was paid $5000 by the mineral company for right-of-way to improve the pad and access road.  Can I deduct $5000 for property improvement?  If so, how do I enter that in Turbo Tax?

3 Replies
Employee Tax Expert

Deduction for property improvement

No. The $5,000 you paid to the mineral company for right-of-way to improve your pad and access road is not deductible. It is added to the value of your property.


When you sell, the improvements will lower your taxable profit. The IRS computes profit as sales price sales expense (purchase price + improvements).


The basis of property you buy is usually its cost. You may also have to capitalize (add to basis) certain other costs related to buying or producing the property.


Your original basis in property is adjusted (increased or decreased) by certain events. If you make improvements to the property, increase your basis. If you take deductions for depreciation or casualty losses, reduce your basis.


Refer to Basis of Assets

New Member

Deduction for property improvement

It seems that I miss stated the problem.  Its not about property improvement.  Its about property damage.  The oil company paid me to allow them to put in a road to the pad site and increase the size of the pad.  In doing so, there was some timber taken out which I would have eventually sold to a timber company.  Is there some way I can leverage this damage on my income tax?

Expert Alumni

Deduction for property improvement

No, if the oil company removed timber that you might have sold, you cannot claim a deduction for the value of any timber they removed in order to make those improvements.


They paid you $5000 for the right to make improvements, which would include the right to remove obstacles (trees) to making those improvements. 


It would appear that your only option would have been to sell the timber before they began making the improvements.


This was not a deductible casualty loss. Per the IRS, a casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration.

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