Land taxes for royalty land

[Gretel]

Taxes paid for land from which royalty income is received are deductible on Sch. E or Sch. A?

[thomtax]

Gabrielle, Isn't there a line on the Schedule E, where royalty payments are accounted for, that lists taxes?

[Gretel]

Gabrielle, Isn't there a line on the Schedule E, where royalty payments are accounted for, that lists taxes?

Oh, yes it is. I have been using this line for production taxes, which are deducted by the royalty companies automatically. I have been using the land taxes on Sch. A but now doubt that this is the correct treatment. Doesn't make any difference if they itemize but will if not.

[gkaiseril]

State Issue

This could have an affect on the state income tax. Since a Schedule E deduction is above the AGI line it would affect all the states that start at the federal AGI and do not take into account the Schedule A items.

[Gretel]

Thanks for pointing out the state issue. However, in Montana the state is effected the same way as Federal, just at a different income level.

Anyone else a suggestion if these taxes should go on Sch. A or E?

[taxxcpa]

Tax on land

If the land is used for anything other than as a location for the wells, then it could not all be considered an expense of the royalty. I don't really know the answer, but there might be some sort of allocation between the mineral interest in the property and the remaining interest in the property.