{"@context":"https://schema.org","@type":"FAQPage","mainEntity":[{"@type":"Question","name":"How is oil and gas royalty income taxed?","acceptedAnswer":{"@type":"Answer","text":"

Royalty income is generally taxed as ordinary income, but you can usually offset part of it with a depletion deduction. Royalty interests are typically passive or portfolio income and are not subject to self-employment tax, unlike most working interests. Texas has no state income tax, but your royalties are still fully reportable on your federal return.

"}},{"@type":"Question","name":"What is depletion, and do I qualify for it?","acceptedAnswer":{"@type":"Answer","text":"

Depletion lets you deduct a portion of your mineral income to account for the resource being used up. Owners can use cost depletion (based on your basis in the property) or, if eligible, percentage depletion (a fixed percentage of gross income, subject to limits). Most royalty owners qualify for percentage depletion. We calculate both and apply the one that gives you the larger allowable deduction.

"}},{"@type":"Question","name":"What's the difference between a royalty interest and a working interest?","acceptedAnswer":{"@type":"Answer","text":"

A royalty interest pays you a share of production with no responsibility for drilling or operating costs—it's generally passive income. A working interest shares in those costs and is usually active business income subject to self-employment tax, but it also unlocks deductions like intangible drilling costs. Reporting one as the other is a common, expensive error.

"}},{"@type":"Question","name":"I inherited mineral rights. How does that change my taxes?","acceptedAnswer":{"@type":"Answer","text":"

Inherited minerals generally receive a stepped-up basis to fair market value at the date of death, which affects your cost depletion and any future sale. Establishing and documenting that basis is important and often overlooked. See our Estate & Trusts services for coordinating inherited minerals with the rest of an estate.

"}},{"@type":"Question","name":"Do you handle royalties held through partnerships or across multiple states?","acceptedAnswer":{"@type":"Answer","text":"

Yes. We reconcile partnership K-1s and 1099s, handle multi-state filing where production crosses state lines, and tie your division-order statements back to what's reported to the IRS. We also coordinate with your tax planning so royalty income fits your broader strategy.

"}}]}