It will be a deduction for you when you file your Federal Income Tax return. You will enter it on Schedule E, which is also where you will show the income. You will get to take off the McMullen County property tax you will get at the year’s end and have to pay (pay in that calendar year to take the deduction that year). You will also get to deduct 15% depreciation, and after this, you will have the total taxable income figure. The oil company will send you a 1099, and it will have your income on it and should have the Texas Severance tax figure on it as well, but keep the check stubs as backup.