Oil Well Royalties Depletion

[DL1946]

It shows a depletion on my taxes for Oil Wells in North Dakota. I only own the Mineral Rights. I received a 1099 Miscellaneous from the oil company doing the drilling. Is this depletion correct to take? I am getting less from them this year.

[RobertG · Accepted solution]

The depletion allowance is calculated as part of the interview when you are entering your royalty information.

If you are receiving oil royalties TurboTax will automatically calculate the depletion allowance.

For oil and gas royalty owners, percentage depletion is calculated using a rate of 15% of the gross income based on your average daily production of crude oil or natural gas, up to your depletable oil or natural gas quantity.

[brkirchh1]

It did not given me the 15% for depletions.  Am I putting something in wrong?  I tried to type the amount into the box under forms and it would not let me.

[JMcV]

Did you ever get an answer to your question on Depletion allowance?

[brkirchh1]

no

[ReneeM7122]

Please view this thread for details about entering royalties depletion information in TurboTax.

@brkirchh1

@JMcV

[mudbug1]

I do not see that oil and gas depletion is automatically calculated by Turbo Tax.  What am I missing?

[PatriciaV]

If you have entered royalty income properly under an oil & gas Royalty Property, TurboTax should display the amount of depletion that was automatically calculated for you.

Be sure you set up a Royalty Property under Rental Properties and Royalties and checked the box for "Royalty Property or payment" on the Property Profile page. Indicate that you received Oil and Gas Royalty income under "What type of royalty income?" Then enter the income you received. The next page should display Depletion Information.

[BON221d]

I entered the 1099 misc for oil & gas royalties.  Is correct... NO depletion credit  

[MarilynG1]

Be sure you set up a Royalty Property under Rental Properties and Royalties and checked the box for "Royalty Property or payment" on the Property Profile page, and didn't just enter your 1099-Misc in the 1099-Misc section. 

Indicate that you received Oil and Gas Royalty income under "What type of royalty income?" Then enter the income you received. The next page should display Depletion Information.

If you're using TurboTax Online, the Depletion shows as an Expense for your Royalty Property.

@BON221d 

[DanaB27]

If you are using TurboTax Desktop please follow these steps:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "Rental Properties and Royalties (Sch E)" 
4. Answer "Yes" to "Did you have rental or royalty income..."
5. Select "Royalty property or payment" on the "Is this a Rental Property or Royalty" screen
6. Continue through the questions until the "What type of Royalty Income?" screen and select "Oil and Gas Royalty Income"
7. Continue through the screens 

@BON221d 

[grandpaknei]

Using Windows 11 TurboTax Deluxe, the interaction to calculate depletion allowance described here did not occur.  When I pulled up the Schedule E, it showed I had specified Gas Royalties but no depletion allowance.   I was able to enter my calculation of 15% and it was carried into the adjusted taxable amount.  For the many landowners who may not be aware or forget year to year, it is a clear benefit that TurboTax not only automatically compute the depletion allowance, but also announce during the step by step the amount to which one is entitled (in all versions of the software).

[DianeW777]

As I test this scenario TurboTax Desktop did produce the depletion.  I appreciate your experience and these steps may help explain.

Here are the steps I used to recreate it.

1. Use Search, upper right > type royalties > Click the Jump to... link
2. The first time you add a royalty property you are asked to select the 'Type of Royalty'.  If Oil and Gas is selected then the depletion is automatically selected.
3. Enter the income > Continue > Calculation occurs and the Depletion entry is in place.  
4. There are images below for assistance.

@grandpaknei 

[grandpaknei]

Starting from scratch to create a royalty property would certainly be ideal. However, Turbo Tax, has copied this property from year to year for at least 10 years. The way it currently exists in the forms is as a Schedule E Worksheet with a subordinate Asset Worksheet. Schedule E is purely descriptive with gross income and withheld taxes from the 1099. The Asset Worksheet transcribes the schedule E descriptions (address etc) and contains numerous blank.fields (such as date put in service, value at time of acquisition, etc.)

The only field with highlighted content is box 5, “type of asset”. It currently contains “H – Land Improvements” Based on your description I expected the pull down menu for that field to allow me to change it to Royalty etc. as you described/ It did not. The other choices are not relevant, e.g. “trees or vines bearing fruit or nuts.” Since I've successfully filed all these years and am able to just enter the depletion in the schedule E, I am loathe to create a new asset and expect to have to answer numerous unanswerable or hard to research questions such as date put in service, value of asset (how much was the gas in the ground 10 years ago, etc.) So I am going to continue with my modified schedule E perhaps as always, because I can't recall what I've done year to year and a quick look at full pdf report from last year didn't show me anything, unless you have an easy answer how to modify the existing property.

But I gave it a try. The jump put me at the completed end of income, but I was able to back up to the beginning and find where I could add a new royalty property as you described. I included all the same information already in the original property. During the step by step it asked me to ENTER the depletion, which I hand calculated. It did not mention the 15% rate as in your example, and perhaps because I accurately entered 15% didn't announce it later.  Looking at the forms, a second Schedule E was created pretty much identical to the original. However, a second asset wks was NOT created from which I assumed the new royalty schedule E matched to the asset address that existed for the asset. As a result, the asset still shows as H – Land Improvements. An additional QBI component was created duplicating the income from the first entry. So as I promised, I deleted the experimental return and went back to my original proposition to proceed with depletion added to the 1099.