Inherited royalty interest eligible for depletion allowance?
IRS Publication 535 (Section 9: Depletion) states that one may claim a depletion deduction only if you have an "economic interest" in a mineral property, where an "economic interest" exists if BOTH of the following apply:
- you have acquired BY INVESTMENT (caps. mine) any interest............
- you have a legal right to income from the extraction................
Although I have not to this point claimed any depletion deductions for my inherited royalty interests in several properties because INHERITED did not seem to meet the dual criteria of the IRS, I have discovered several internet entries that refer to claiming the depletion deduction for inherited interests.
My question is simple: can I or can I not claim the deduction for inherited interests? If yes, what is the rationale (that would satisfy the IRS!) for considering an inheritance as being "BY INVESTMENT"?
Any thoughts and/or help would be appreciated.
- you have acquired BY INVESTMENT (caps. mine) any interest............
- you have a legal right to income from the extraction................
Although I have not to this point claimed any depletion deductions for my inherited royalty interests in several properties because INHERITED did not seem to meet the dual criteria of the IRS, I have discovered several internet entries that refer to claiming the depletion deduction for inherited interests.
My question is simple: can I or can I not claim the deduction for inherited interests? If yes, what is the rationale (that would satisfy the IRS!) for considering an inheritance as being "BY INVESTMENT"?
Any thoughts and/or help would be appreciated.
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Comment by red rider on March 20, 2009 at 17:48 -
i think you'll be just fine by taking the depletion. if you legally own the land, and are receiving income, then you should be able to take the deduction. no questions asked. you inherited the property, probably paid an inheritance tax, the laws can get so stupid. they were written to be confusing. i inherited my property 28 yrs ago, and have been claiming depletion deductions every year. you will be fine.
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