Yes - if the property is located in another state - you need to file a tax return as a non resident for that state and may owe state income tax.
On your home state tax return - you will claim a credit for taxes paid to another state.
There are two ways of figuring depletion on mineral property.
Cost depletion.
Percentage depletion.
Generally, you must use the method that gives you the larger deduction. However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells.
For calculating cost depletion - see the IRS publication 535 chap 9 - http://www.irs.gov/pub/irs-pdf/p535.pdf
Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property by 15%.
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