depletion

[nacbarbour]

My client has royalty income from a trust.  Where is depletion reported? And what are the steps in proconnect to get the deduction in the right place on the proper form?

[sjrcpa]

Same place as the royalty income. Schedule E page 1.

[PhoebeRoberts]

Your client has a Form 1041 Sch K-1, reporting oil & gas royalty income (probably as a component of Line 5)? Use the O&G input section.

Your client has a publicly traded investment in something called a royalty trust? Ask them to give you the five bazillion page booklet explaining how to calculate all the numbers. It tells you exactly what line everything should show up on.

[nacbarbour]

When I include depletion on Sch E part 1 as suggested, the depletion is limited due to passive activity loss limitations while the income is not allowed as an offset.  Why? Seems that the royalty income should appear on Sch E page 2, Part III and the depletion should be a deduction in that same area.

[sjrcpa]

There should be a box to check, or similar, to get the Royalty income on Schedule E page 1.

[nacbarbour]

If I check the box, the depletion amount  gets added to the 8582 as a passive loss while the royalty income is not characterized as passive income such that depletion would be fully deductible.

[George4Tacks]

https://accountants.intuit.com/support/en-us/help-article/royalty-income/understanding-proconnect-ta...

https://accountants.intuit.com/support/en-us/help-article/tax-credits-deductions/understanding-proco...

https://accountants.intuit.com/support/en-us/help-article/form-1040/entering-oil-gas-information-lac...

and more from using the search on this site setting it to filter for ProConnect 

https://accountants.intuit.com/support/en-us/help-search?filter=ProConnect+Tax+Online&filter=locatio...

[sjrcpa]

@nacbarbour And your problem with that result is ___________?

[nacbarbour]

Proconnect is treating the depletion deduction as if it is a passive loss. This taxpayer has other passive losses and income the net of which is net positive income.  Yet with the depletion deduction the overall net of passive losses, passive income and the depletion is negative so the depletion deduction is not allowed in full. Based on my research the only limit on the depletion deduction is in 613A(d) which is rule that limits depletion to 65% of income.  This taxpayer has net income far in excess of the depletion deduction.  So this rule should not apply.  I've read the how proconnect calculates depletion suggestions, I've checked the oil and gas check box to have depletion show as negative income of Sch E page 1 and I don't get tangled up in the passive activity loss rules form 8582 but the presentation is odd.  Seems like it belongs on Schedule E page in section III which captures trust income and deductions.

[PhoebeRoberts]

The input for royalties from a trust leaves something to be desired, I agree. Personally, I like all my royalty income and deducts on page 1 of Sch E - that's the default Lacerte presentation for S-corps and partnerships.

I agree that depletion on royalties is statutorily a non-passive item. O&G royalties are never a PIG.