I have Non-Participating Royalty Interests in Texas and it’s tax time. In addition to the 15% depletion deduction on gross revenue, can I also deduct production costs, taxes paid by producer, etc… essentially the difference between Box 2 Gross and Box 2 Net on the producer 1099-Misc? I’ve read many posts and articles but only a few say you can. The majority don’t mention it one way or another.
Yes you can take those deductions. The taxes are severance taxes on the oil and gas. Use Sch E.
Yes, you’ll essentially be taxed on your net payments received, less 15% depletion on the gross production amount up to the amount you received in cash. Percentage depletion can’t cause a loss. If you’re calculating cost depletion, that’s a different story.