Since I pay a portion of the post production costs which are deducted from my royalties, which include some taxes (that are not federal or state), anyone know if they are deductible?
Ms. Nolen, I don’t believe that you can deduct post production costs. As a lessor you don’t own the oil and gas, you just receive a royalty percentage of what it sells for, after the deduction of the costs. The same goes for flared gas, since you leased it, you don’t own it and can’t deduct it as a loss. I’d be interested if someone had better and conflicting information than what I posted above.
Here is a discussion about deducting severance taxes from 2011: http://www.mineralrightsforum.com/forum/topics/severance-tax-deductions?commentId=4401368:Comment:34038
Here are a couple general links about what you can deduct: Tax Benefits for Oil and Gas Well Owners
Hope this helps,
Don’t forget to look into the “depletion deduction,” which allows you to deduct a percentage of the amount of your royalty income from your federal income taxes (if you itemize). Currently, the percentage is 15%, I believe. Check out Schedule E, Line 18.