To enter royalty income in the TaxAct program:
If you have not already entered the applicable Schedule E (Form 1040) information:
If you have already entered the applicable Schedule E (Form 1040) information:
Per IRS Publication 525 Taxable and Nontaxable Income, on page 17:
Royalties from copyrights; patents; and oil, gas,and mineral properties are taxable as ordinaryincome.
In most cases, you report royalties onSchedule E (Form 1040). However, if you holdan operating oil, gas, or mineral interest or arein business as a self-employed writer, inventor,artist, etc., report your income and expenses onSchedule C (Form 1040).
Copyrights and patents. . Royalties fromcopyrights on literary, musical, or artistic works,and similar property, or from patents on inventions, are amounts paid to you for the right touse your work over a specified period of time.Royalties are generally based on the number ofunits sold, such as the number of books, ticketsto a performance, or machines sold.
Oil, gas, and minerals. Royalty income fromoil, gas, and mineral properties is the amountyou receive when natural resources are extracted from your property. The royalties are generally based on production or revenue and arepaid to you by a person or company who leasesthe property from you.
Depletion. If you're the owner of an economic interest in mineral deposits or oil and gaswells, you can recover your investment throughthe depletion allowance. For information on thissubject, see chapter 9 of Pub. 535.
Coal and iron ore. Under certain circumstances, you can treat amounts you receivefrom the disposal of coal and iron ore as payments from the sale of a capital asset, ratherthan as royalty income. For information aboutgain or loss from the sale of coal and iron ore,see chapter 2 of Pub. 544.
Sale of property interest. . If you sell yourcomplete interest in oil, gas, or mineral rights,the amount you receive is considered paymentfor the sale of section 1231 property, not royaltyincome. Under certain circumstances, the saleis subject to capital gain or loss treatment asexplained in the Instructions for Schedule D(Form 1040). For more information on sellingsection 1231 property, see chapter 3 of Pub.544.
If you retain a royalty, an overriding royalty,or a net profit interest in a mineral property forthe life of the property, you have made a leaseor a sublease, and any cash you receive for theassignment of other interests in the property isordinary income subject to a depletion allowance.
Part of future production sold (carved out production payment). If you own mineralproperty but sell part of the future production, inmost cases you treat the money you receivefrom the buyer at the time of the sale as a loanfrom the buyer. Don’t include it in your incomeor take depletion based on it.
When production begins, you include all theproceeds in your income, deduct all the production expenses, and deduct depletion from thatamount to arrive at your taxable income fromthe property.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.