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How do I report the income from and sale of mineral rights?

If the income was:

  • A royalty from a nonworking interest, report it on Schedule E
  • From a working interest in mineral rights, report the income on Schedule C
  • From a pass-through entity, report the income on Schedule E, page 2

An interest in an oil or gas property is a working interest if both of these are true:

  • You're the owner.
  • You have to take into account the costs of starting, building, and operating the property.

This type of interest is created by the terms of the lease.

Report the sale of the working interest used in your business as a sale of Section 1231 property. Do this on Form 4797.

If you sold the mineral rights on a piece of real property you owned but didn't use in your trade or business, report the sale on Schedule D.

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