Need help regarding 15% depletion

Any tax experts out there?  I've Googled this but no luck so far:

For 2014 and (completely separately) for 2015, will the 15% depletion allowance (on royalties) continue to be available to royalty owners?  It's been a nice help in the past.

There are so many changes to tax law that it's difficult to keep up.  Did the Obamacare law possibly nip us on this one, or maybe some other change?  Or are we still in the clear for now?

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Permalink Reply by Philip Thackray on January 16, 2015 at 7:58am

Happy Dad,

The depletion allowance does not do you any good in an IRA so I'm sure you could ignore it.  Would it be possible to do a "Like to Like" exchange, moving a fully taxable investment into your IRA and the Oil and Gas Royalty out of the IRA?  Whether Percentage or Cost, the depletion allowance can be a powerful tax tool.

Please remember that I am not qualified to give tax advise.

Phil

Permalink Reply by Billy Park Whyde on January 16, 2015 at 8:10am

I'd like to know how you could put a royalty into a IRA without paying taxes upon it to begin with much less draw out of the IRA without paying taxes upon that money.

Permalink Reply by Happy Dad on January 16, 2015 at 10:44am

I can't do anything with my IRA that would benefit me personally or involve my personal assets or those of other family members.  I have to maintain an absolute firewall of separation between me and my IRA (which is held by a trustee).  Otherwise my IRA is invalidated.  No self-dealing allowed.

Permalink Reply by RAYMOND bAUMAN on January 17, 2015 at 11:17am

There are two other limitations on % Depletion. !5 % of Gross cannot exceed 50% net income from the property and 65% of you Gross Taxable income from all sources.  So you have to figure out the Costs to market your royalty minerals and other costs. Such as  Depreciation of basis of the land attributable to minerals estate, interest taxes , Severance and ad Valorium.( Real estate on minerals extracted in Ohio ).  Some of these taxes may be paid  by producer and deducted from royalty.

Permalink Reply by Frank Walker on January 18, 2015 at 5:53pm

I want to emphasize, Raymond, that I do not for an instant dispute what you wrote.  While I don't know for certain, either, that you are correct, I'm willing to take you at your word.

That said, and just as a personal anecdote and data point, I've been taking the 15%, since I began collecting royalties, without regard to any possible limitations.  I can report so far so good.  I do not appear to have triggered, at least so far, any IRS tripwires.  Of course the IRS today is, thankfully, FUBAR.  We all should be grateful for that.  It is in essence now part of the Democrat Party political machine, being used to harass Democrat opponents.

But this is good and helpful in that, given the budget cutbacks the IRS has suffered, the organization has less time to follow up on "details" within the returns of average taxpayers like us.  They're going to complete their political audits first;  you can take that to the bank!!  I'll bet they have an entire department, staffed by their best and brightest auditors, dedicated to detailed, exhaustive, examination of the returns of people like Rush Limbaugh and Matt Drudge

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