One of the most common questions investors have is “how are mineral rights taxed?” It’s an important question to ask since the taxes paid can be a significant amount when the time comes. The good thing about having to write checks to the IRS for your oil and gas minerals is it means your investment is paying off. When you understand tax laws in your state and at the federal level, you can take advantage of deductions and ensure you don’t get into a sticky situation with your taxes. Here are some basic points to understand about taxes and mineral rights.
How The IRS Views Royalty Income
The royalty income you receive from your oil and gas minerals are taxed just like regular income. You will receive a 1099 form that needs to be included on your tax return, but be sure to verify the information on the form with the check stubs you received that year. The tax rate you pay will be a combination of your royalty income and the income you make from your job, so those can’t be separated from that standpoint. You may also receive a lease bonus, which could be sent as a separate 1099, but still needs to be reported as regular income.
Tax Deductions To Remember
When you buy oil and gas minerals, you need to know what tax deductions you can take advantage of. This could include marketing fees, processing fees, severance taxes and other deductions. It can get tricky when you itemize deductions, so working with a tax professional is valuable to ensure you’re getting the most from your deductions and not missing something. Your depletion allowance is something to also keep in mind, as the IRS allows for a deduction for certain situations.
State Income Tax Laws Vary
When it comes to state income taxes, most states view royalties on oil and gas minerals similar to the federal level. However, it’s important to consult with a tax professional to ensure the same is true in the state you live in. There may not be many differences, but the differences that are present can be significant. The more you know, the better the situation you’ll be in when it comes time to pay your taxes.
Eckard Land & Acquisition helps investors understand their tax situation with oil and gas minerals. Each investor’s situation is unique and complicated in different ways, so every scenario needs to be evaluated closely. You want to pay the appropriate amount of taxes while also putting as much money back in your pocket as you legally can. With the help of our experts, you can have peace of mind knowing the taxes paid on your oil and gas minerals are correct. Be sure to contact us to learn more about how we can help you.
