I was recently told by a well known and respected west Texas oil and gas attorney that income ,for tax purposes, from ROW sales can be treated as capital gains and therefore taxed at a lower rate. If this is true, what is the process of doing this?
Dear Gene,
I was not aware of that. I would check with a CPA to find the process.
The damages portion of the ROW payment can be tax deferred and used as a reduction in cost basis and you would reap favorable capital gain treatment when sold. Check with your CPA about this also.
Taxes are tricky and you do not want to stumble in preparation of the forms.
Best
Buddy Cotten
I talked with several CPAs about the same issue and got totally conflicting opinions. The CPA whom I ultimately hired deducted the entire payment for the ROW and damages as a reduction in cost basis.
My cousin's CPA advised her that all the ROW and damages was taxable and didn't make any deductions. Much of the tax code is very confusing and I think it is so open to interpretation that CPAs don't often agree on what is correct. As Buddy Cotten said, taxes are tricky.