Tax Reporting of Oil and Gas Investments: Royalty Income, Cost vs. Percentage Depletion, Excess IDC

A live 110-minute CPE webinar with interactive Q&A

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Thursday, February 9, 2023 (in 5 days)

1:00pm-2:50pm EST, 10:00am-11:50am PST

or call 1-800-926-7926

This webinar will provide an overview of the terminology, income, and deductions most often reported to investors in oil and gas and similar industries. Our knowledgeable presenter will explain the types of royalties, methods of depletion, and scouring the K-1 for deductions for these investors.


Properly reporting income and expenses from investments of any kind is complex. This burden increases substantially for investors with oil, gas, mineral, or coal interests. Excess intangible drilling costs (IDCs) vs. preference IDC, working interest vs. royalty interest, and excess, cost, and percentage depletion are a few terms and amounts that investors and tax practitioners encounter. For taxpayers who are investors, and not in the oil and gas business, these terms and taxable amounts can be daunting.

For royalties, the preparer should first determine the source of the royalty. Its source may not be an oil and gas interest; it could be a mineral interest or even a patent. For oil and gas interest depletion, cost depletion and percentage depletion should be compared to see which is more beneficial.

Often tax-saving deductions are somewhat buried on Line 20 of Form K-1, Other Items. All tax professionals confront 1099s and K-1s, most often PTPs, for these investments. It is essential that they grasp the terminology and reporting responsibilities in order to minimize taxes paid by these investors.

Listen as our experienced CPA addresses reporting O&G investments, royalties, mineral, and similar interests for tax advisers preparing individual income tax returns.



  1. Difference between royalties and working interests
  2. How to handle royalty income (and how not to)
  3. The depletion deduction – cost depletion versus percentage depletion
  4. Oil and gas investments through a Schedule K-1
    1. Capturing all reported deductions
    2. What is “excess IDC” and why it is usually not an AMT preference item


The panel will cover these and other critical issues:

  • Types of royalty income and relative deductions
  • When 15 percent depletion can and should be used
  • Calculating percentage and cost depletion
  • Reviewing Schedule K-1 for cost-saving deductions
  • Key differences between working interests and royalty interests


Kucera, S. Kathryn
S. Kathryn Kucera

S Kathryn Kucera, CPA

Ms. Kucera focuses on individual income tax returns that are complex and data-intensive. She prepares most types of tax...  |  Read More

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