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emc011075, Master Tax Adviser
Category: Capital Gains and Losses
Satisfied Customers: 4217
Experience:  Master Tax Adviser and Enrolled Agent
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I purchased our home that sets on 10 acres of land in 2006.

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I purchased our home that sets on 10 acres of land in 2006. In 2016 I sold, the gas rights for $50,000. I filed for an extension on my 2016 taxes and sent an estimated payment in that showed reporting the $50,000 as income. I am now wanting to complete my return and know that the entire amount shouldn't be taxable, but first do I try to estimate what the gas rights would have been worth when I purchased the property in 2006, subtract that from the $50,000 and report the difference as income? If so, how could I come up with a value per acre in 2006 to do this calculation? Finally, if there is a better way to do this, what would you suggest? Your help would be greatly appreciated. Jim

Hi. My name is ***** ***** I will be happy to help you.

You did not sell the land, you just gave the rights to somebody to get the gas from underneath your land, correct?

Did you received any type of tax form for the 50K? 1099Misc or K1, maybe?

Customer: replied 8 months ago.
I have a 1099-MISC form putting it under "other income", and I just sold the gas rights, not the property.

It is technically type of royalty income. You can report it on Schedule E as royalty and deduct depletion, 15% of what you received. Have you signed some type of lease/rent agreement or 50K is just one time payment?

Customer: replied 8 months ago.
One time payment. Not a lease agreement. The company purchased it from me.
Customer: replied 8 months ago.
It sounds like I would pay taxes on $42,500 then, correct?

You can still claim the depletion deduction since your property will be used. You do not estimate value of the gas at the time you bought it.

Yes, 42,500 its about right. Just make sure, when you report it to check that it is not subject to self-employment tax.

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