Granting of Rights and Royalties

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  • equinecpa
    Senior Member
    • Mar 2006
    • 578
    #1

    Granting of Rights and Royalties

    I'm doing a return where the client received $2700 for selling the rights to drill on their property to an oil company for the term of 3 years.

    This wouldn't be eligible for the depletion allowance would it?
    Tags: None
    • taxxcpa
      Senior Member
      • Nov 2007
      • 978
      #2
      No production, no depletion

      It would not be eligible dor depletion. Working interest or royalty interest payments for production are eligible for depletion, not payments for the right to drill, etc.

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        • equinecpa
          Senior Member
          • Mar 2006
          • 578
          #3
          It is on the 1099 as a Royalty...is why I asked. The figure was so much higher than in other years so I asked the client why? And it was because of the sale of the rights to drill for 3 years.

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