What Depletion Allowance tax deductions are available to oil and gas royalty owners?
Mineral owners are allowed tax relief by the IRS for producing and depleting nonrenewable resources such as oil and gas. By using the percentage depletion allowance and deductions available for bonus and royalty income, royalty owners get to keep more of their oil and gas royalty income.
The IRS tax code refers to Depletion Allowance:
Oil and Gas Wells:
A taxpayer can only claim percentage depletion for an oil or gas well if:
1) he is either an independent producer or a royalty owner OR
2) the well produces natural gas that is either sold under a fixed contract or produced from geopressured brine.
Here's my question:
IRS publication 535 states you can take depletion if you have an "economic interest" in the mineral property. It further defines that for "economic interest" to be valid, you must have "acquired by investment any interest in mineral deposits or standing timber." Since we inherited our mineral acres, we did not acquire them by investment.
Since I inherited and did not invest can I still claim depletion allowance?
Thank you, Military Pup