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  • Understanding Royalty Taxes – Part 5 Income!

    June 18, 2019

     

    Selling royalties can be a lucrative endeavor for many people who own mineral interests.

     

    Like any other type of earned income, the income you generate selling royalties is also subject to taxation at the federal and state level.

     

    Although residents of Texas with royalties for sale are fortunate because there is no state income tax, you are still responsible for paying federal taxes on your royalty income.

    Income Taxes for Mineral Royalties

    Anyone who owns producing mineral interests and has earned income either through royalties or the sale of their interests is required to pay federal taxes on that income as well as state taxes where that is required.

     

    You must pay income taxes on earnings generated through oil and gas production when required:

     

    ===>> You earn income selling royalties, as that income counts just like any other income you might earn in other ways.

     

    ===>> You receive a lease or signing bonus, as bonus payments are also taxable income and classified as rental income.

     

    If you do sell your mineral rights outright, you do not have to pay income tax on your earnings as this is considered property; instead, you are required to pay a capital gains tax as discussed in Part 3 of this series.

    Federal Income Tax Rates When Selling Royalties

    Income generated from royalties for sale, including any rental income obtained from lease and signing bonuses, is taxable at the standard income tax rate based on your overall yearly taxable income.

     

    Fortunately, there are a number of claimable deductions that you can take to reduce your taxable income including severance tax deductions, processing fees, marketing fees, depletion allowance discussed in Part 2 of this series, and others.

    Filing Your Income Taxes for Earned Royalties

    To file your yearly taxes on income earned by selling royalties, you will need to submit a 1099 form that you should receive from the energy company or entity producing from your interest that has been sending your monthly production statements.

     

    You should also receive a separate 1099 form for any bonus income you receive.

     

    Though these forms usually start mailing out in February, it’s advisable to keep your own records as well as all payment statements and related documentation so you have documentation of the earnings received from your royalties for sale throughout the tax year.

    Talk to A Royalties Professional

    Filing taxes on income generated from selling royalties can be confusing, especially if you qualify for any of the tax credits or incentives available to those with royalties for sale or are filing your royalties income as business income.

     

    Handle your royalties-related taxes correctly by keeping detailed records of all yearly transactions, then work with industry professionals who can assist you determine your amount of responsibility.

     

    Don't miss the 6th and final part of this series on Ad Valorem taxes Understanding Royalty Taxes - Part 6 County Ad Valorem for info on one more tax to know about - and if you missed Part 1 Oil Severance, Part 2 Depletion Allowance, Part 3 1031 Exchange, or Part 4 Gas Severance, here are the links for them as well!

     

    Tax Questions About Selling Royalties In Texas?

    Talk To The Royalties Experts At Permico Royalties!

    Call Us At (432) 242-7335!

Topics

  • Gas and Oil Royalty For Sale in Texas
  • Gas Rights For Sale in West Texas
  • Gas Rights in Texas
  • Gas Rights in the Permian Basin Texas
  • Gas Rights in West Texas
  • Gas Royalties in Texas
  • Mineral Rights For Sale in New Mexico
  • Mineral Rights For Sale in Texas
  • Mineral Rights For Sale in the Permian Basin Texas
  • Mineral Rights For Sale in the United States
  • Mineral Rights For Sale in West Texas
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  • Mineral Rights in The Permian Basin
  • Mineral Rights in the Permian Basin Texas
  • Mineral Rights in The United States
  • Mineral Rights in West Texas
  • Oil and Gas Royalties For Sale in Texas
  • Oil and Gas Royalties For Sale in the Permian Basin Texas
  • Oil and Gas Royalties For Sale in the United States
  • Oil and Gas Royalties For Sale in West Texas
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  • Oil and Gas Royalties in the Permian Basin Texas
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  • Oil and Gas Royalties in West Texas
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  • Sale of Gas Rights in Texas
  • Sale of Gas Rights in the Permian Basin Texas
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  • Sale of Oil Rights in Texas
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  • Sell Gas and Oil Royalties in Texas
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  • Sell Oil Rights in the Permian Basin Texas
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  • Sell Oil Royalty in Texas
  • Sell Your Mineral Rights in New Mexico
  • Sell Your Mineral Rights in Texas
  • Sell Your Mineral Rights in the Permian Basin Texas
  • Sell Your Mineral Rights in West Texas
  • Selling Gas Rights in Texas
  • Selling Gas Rights in West Texas
  • Selling Mineral Rights in Texas
  • Selling Mineral Rights in The Permian Basin
  • Selling Mineral Rights in the Permian Basin Texas
  • Selling Mineral Rights in The United States
  • Selling Mineral Rights in West Texas
  • Selling Minerals in West Texas
  • Selling Oil Rights in New Mexico
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  • Selling Your Mineral Rights in Texas
  • Selling Your Mineral Rights in the Permian Basin Texas
  • Selling Your Mineral Rights in West Texas