Royalties

[Jesse]

Have a 1099MISC for Royalties in the amount just over $10,000.

Additional Information for Recipient:
Gross Royalty Interest Box 2: $10,000
Less Transp, Marketing Charges: $220
Less State and Miscellaneous : $320
Equals Net Royalty Interest: $9,460

Is there any reason why these expenses can not be deducted on the Schedule E?

[Y2KEA]

That is where I put them. I also put on the tax prep fees from the prior year attributable to that particular schedule.

[Jiggers]

That is where they belong. Don't forget the percentage depletion on the Gross.

[Davc]

Some of State and misc. might be state withholding which is not a schedule E expense, it goes on the sate return.

[taxtimeagain]

That is where they belong. Don't forget the percentage depletion on the Gross.

I am in an area where quite a few people are receiving royalty payments on natural gas wells. From my understanding the depletion would be 15% of gross payments for the year. Is this correct? Thank you!

[AJsTax]

yes

I am in an area where quite a few people are receiving royalty payments on natural gas wells. From my understanding the depletion would be 15% of gross payments for the year. Is this correct? Thank you!

Depletion % is 15%.
make sure you make the difference between actual royalties and the upfront bonus payments on those leases..they are to be reported as rents on the Sch E and no depletion. No production yet, not depletion, though I have seen it tried.
I am in one of the hotest areas in the country for that exploration at this time and my own farm is involved. have been in some real interesting discussions with oil well companies the past year.

[taxtimeagain]

Thank you AJ I am in a "hot" area also so I expect to be seeing alot of this. I was talking about wells in production already. Last couple years I have had many of the upfront bonus payments. Just making sure I was thinking it through correctly. Thank you for your answer!