Tax software for royalty and lease ("rent") income... What do folks do?

Hi Folks

Pardon me for putting this on the main page, but the Taxes & Death forum seems moribund, and I just found that the H&R Block solution suggested there seems "non-optimal".  I first tried using TurboTax Premium, and the TurboTax folks both gave me clearly incorrect advice as well as upgrading me to their next (and highest) level of software (for free, that was nice of them).  Unfortunately, the highest level software has the same problems as Premium - it gets completely confounded by a situation where you have both lease and royalty income, the same year.  I DID find I could drop behind the scenes (into the forms view, where you directly change forms entries), and I could get things to a "probably correct" state with depletion allowances, etc., but I was hoping for a bit more help from the software on royalty taxes and expenses, and also hoping some software would handle the issue of multi-state filing so as to avoid double taxation between your resident state and Louisiana (since I am out-of-state).

 

SO, given that it was the recommended solution under Death&Taxes, I went to H&R Block, and checked out their highest-end online product (includes online support from a "tax specialist").  Seems the tax specialists know less about O&G taxation issues than I do (frightening), and in addition, the H&R Block product drops you on the floor if you ask it to do depletion allowance (so imagine sched E, you have requested a royalties 1099-MISC entry, you check the (depletion?) checkbox in their software, and it basically says "whoops, that is way too complicated to do online; you need to come down to our office and consult in person" (for $700 or whatever it is - last time my daughter used them, that was what it cost her).  This, to get a $600 depletion allowance...  So I find the hawking of HRB on this site as a little misleading, though I have to admit I am "only" into day one of trying to see if they can fix it (I am at least several days into figuring out what TurboTax can do, and have pretty much been reduced to buying tax software but then reading all the IRS and LDR docs anyway...)

 

Anyway, any suggestions?

 

I understand about Schedule E, rents, royalties, depletion, and the need to file this stuff nonresident in LA somehow.  Surely there is tax software package that can do such things correctly?  What does everybody else do? - hand file?  - pay a tax consultant big bucks? - hide in the woods?  Seems like a major issue for us all...

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Castellano and Associates

Mansfield Rd.

Shreveport,La.

 

 

They are not a software package, whereby someone with reasonable intelligence can do their taxes.  Also I am over 2000 miles away from any bricks and mortar outfits in the oil patch.

Sorry for the delay in answering.  I was doing double duty at my office yesterday and didn't get home until late.  In response to your concerns about the Sch E.  You have pretty much figured it out correctly.  You have to put the lease bonus (rents) on one Sch E with the associated expenses, if any.  Then you have to put the royalties on another Sch E with the taxes, production expenses, and depletion.  The program will combine these on to one Sch E with colum A and B filled in and net the amount at the bottom.

As to the depletion.  There is no "easy" way to do it in the depreciation/depletion screen of any of the software (even the one in our office).  Unless the land owner has a working interest in the royalties I usually put depletion on the other expenses line at a flat 15% of the gross income.  All works out the same in the wash and I've never had one come back on me that way.

 

For you LA and NC forms, the H&R Block At Home software will support it.  You need to file a non-resident LA return with just the Sch E items (and any other LA income) on it and then you need to file a resident NC return.  On the NC return there is a spot to take the credit for the tax liability (line 19) off of your LA return.  This will mean that even though you are reporting the income on two returns you are only being taxed one time.

Hope that helps.  Feel free to email me with any other questions.

 

Kathy

Hi Katy,

Thanks very much for taking a shot at this.  I remain amazed that it is as problematic as it is, but that is life, especially with taxes!  I can only imagine how swamped you all are until April 15th.  Okay, clarification question:  a "land owner who has working interest" is essentially an unleased mineral owner, is that correct?  Is that where all this confusion on depletion issues comes in?  I am a leased mineral owner, so while I have a "mineral interest", I presume my status is different due to the nature of losses I might incur (and expenses or other depreciation issues, ah joy oh joy).  TurboTax actually does seem to handle depletion okay (sticking it in a line on sched e that would seem to make sense, but maybe not due to the working interest stuff).  I was just amazed when H&R Block software basically had a box for depletion, but refused to go further if I attempted to claim it.  Anyway, I will try to do what you  have suggested.

Thanks again!

You are essentially correct.  There are other types of "working interests" but in most cases that is the way it works.  If you are in a lease you do not have a working interest and you just use the straight 15% depletion.  People with a working interest use cost depletion which is a very large pain in the hind end.  One of the reasons the software outside of the tax office doesn't support the situation is because there are so many varibles involved that the software isn't "human" enough to cover it. 

I don't see any reason from what you have said that you would not qualify for the 15% depletion.  It is so much easier to do and usually comes out better in the long run too.

 

Kathy

Kathy,

 

One tax mineral owners pay (at least in Texas) that is not included on the 1099s from the gas producers is county property taxes.  I have always included those as "tax expense" on my Sch. E's.  The statements I get from the county tax assessors identifies the tax for each producer associated property.  Is this a valid practice or should I take care of this differently?

so far i've tried taxslayer and turbotax, they've both given me the same result on my state return and within 10-15 bucks on the federal, i still haven't figured out where the difference comes from.  i used manual entry for both programs.

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