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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 579
Experience:  10 years experience
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By Gordon Wilcox “.... Due to the fact that depletion and

Customer Question

By Gordon Wilcox

“.... Due to the fact that depletion and distribution costs associated with operating the trust are passed along to shareholders, dividends paid by royalty trusts are not considered taxable income. The shareholder is able to use the non-income distributions to reduce his/her costs basis in the shares, referred to as "units," and pay a lower rate of capital gains when the investment is liquidated. ....”

http://seekingalpha.com/article/836391-when-royalty-trusts-cease-to-be-roy
Submitted: 4 years ago.
Category: Tax
Expert:  Megan C replied 4 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Could you please state your question?
Expert:  Stephen G. replied 4 years ago.
Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Thanks for asking for me; evidently the other professional didn't see that.

I followed the link that you left in your question.

The distributions are not dividends, they are non-taxable distributions of trust income, & as such reduce your tax basis (investment) in the Royalty trust; your taxable income, if any, is determined & reported to you by the end of year K-1 report issued by the trust;

What the comment with respect to capital gains means is that to the extent your original investment is partially returned to you in the form of cash distributions in excess of your royalty income (due to non-cash depletion & depreciation deductions), then you will have a capital gain when either the distributions exceed your original investment in the trust, or the trust is disolved or terminated and any cash distributions exceed any remaining tax basis (investment) in the trust.

If you have any further questions, please let me know.

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.

Customer: replied 4 years ago.

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k.e.

Expert:  Stephen G. replied 4 years ago.

Please remember to rate my response in order that I may receive credit for my answers. Thanks again for using JustAnswer.com.
Expert:  Stephen G. replied 4 years ago.
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