WHAT EXPENSES CAN I DEDUCT FROM GAS LEASE RENT 1099-MISC SCHEDULE E

[KLTJ]

THE INFORMATION IS CONFLICTING.  IN SOME PLACES ON TT, I FIND THAT I CAN DEDUCT PROPERTY TAXES AND PMI FROM MY GAS LEASE RENT INCOME.  AND I SEE OTHER INFORMATION THAT I CANNOT. 

TT HAS A PLACE TO DEDUCT THESE THINGS, SO I WOULD THINK THEY'RE LEGITIMATE EXPENSES. 

AND THERE MAY BE SPECIAL CONSIDERATIONS WITH THE STATE OF PENNSYLVANIA IN THE DEDUCTIONS. 

ANY GUIDANCE IS APPRECIATED. 

THANKS IN ADVANCE!

[PatriciaV]

Since you are reporting gas lease income for Pennsylvania, you should follow these guidelines from the Pennsylvania Department of Revenue:

You may deduct expenses you paid or incurred during the taxable year that are ordinary and necessary for the production or collection of rents and royalties or the management, conservation or maintenance of rents, royalties, patents, copyrights and similar property.

In the case of a gas lease, you can deduct expenses you incur to create the gas lease, such as cost depletion, geological surveys or legal fees associated with the creation of the gas lease.  However, real estate taxes are not deductible expenses because they are personal expenses not directly related to the production of the rental or royalty payments.  

You may also deduct percentage depletion based on the income you received. TurboTax makes this calculation for you, but you should confirm the calculation is 15%. The deduction is limited to the lessor of your taxable income from the property without regard to the deduction for depletion, or 65% of your taxable income from all sources without regard to the deduction for depletion.

See the PA link above if you have questions about other allowable expenses.

[KLTJ]

What is the percentage depletion? 

Also, why are the property tax fields and pmi fields in the expense section of schedule e if I can't claim them as expenses?

To be clear there are no royalties coming from the oil/gas mineral lease.  It is just rent in case they ever drill. It our single family home.

[Vanessa A]

Percentage Depletion is similar to depreciation, but without a machine or vehicle.  Basically, as they remove gas from your property and pay you for it, your gas reserves are decreasing or being depleted so the value it has is being exhausted. Since there is not active drilling on your property, you cannot claim depletion since your gas is not being depleted. 

Schedule E is for all types of rentals and royalties and even a K-1 from a partnership return.  So not all fields apply to all activities.  Think of it like this, you could have a small restaurant that you own as an individual and I could have a consulting business.  We both could use Schedule C to report our income, but you would not likely be able to claim the home office deduction, because you don't work at home in a home office at all.  But, I could claim the home office because I meet the criteria.  Even though we are both using the same form, not everything applies to both of us.