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Can you verify
-- what do you mean under "royalty taxes" - is that real estate taxes which are based on the value of the property and collected by the county?
-- another issue - can you specify on which form your client reports income realized from these properties? and how that income is reported TO your client? 1099? or other form if any?
If income is reported on schedule E - you would need to deduct these real estate taxes on the schedule E as well.
However another question come up - is that royalty income from oil or gas extraction?Taxpayers who receive these payments are royalty owners who do not have a working interest in extraction operations. Taxpayers should normally report these payments as income on Part I of Schedule E (Form 1040), Supplemental Income and Loss. Income reported on Schedule E is usually not subject to self-employment tax.
Taxpayers who do have a working interest in the extraction operations are subject to self-employment tax, and must file Schedule C (Form 1040), Profit or Loss from Business.
When income and corresponding expenses are reported for tax purposes - that is done per property - not per payer.So - if Exxon, Chevron and Valero pay for the SAME property - these payments are ADDED and real estate taxes are deducted against that total income.
So - there is no need to allocate real estate taxes...If however she paid the Smith County tax assessor for SEVERAL properties - she should have an assessment notice separately for each property and you do not need to allocate.If for some reason - these assessment notices were misplaced - you always may contact the assessor office asking for a copy. In additional most counties have such information available online and that is considered public information.
Specifically - see here
If for some reason you still need to allocate and there is no other way - you may use any reasonable method - including allocation based on gross income.
However regardless how you allocate - that should not affect total tax liability - and because of that - it is very unlikely the IRS would ever question the allocation.