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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Should a sale of mineral rights be reported on Schedule D

Resolved Question:

Mineral rights for 95 acres with a basis of $57000 were sold for $76000 in 2006. What is the proper way to report the profit of $19000?
Submitted: 9 years ago.
Category: Tax
Expert:  Lev replied 9 years ago.

Royalties from oil, gas, and mineral properties are taxable as ordinary income.

You generally report royalties in Part I of Schedule E (Form 1040). However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

If you sell your complete interest in mineral rights, the amount you receive is considered payment for the sale of section 1231 property, not royalty income. Under certain circumstances, the sale is subject to capital gain or loss treatment on Schedule D (Form 1040).

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