A mineral or oil and gas interest belongs on Line 12, depletion.
Why line 12
Depletion on a mineral, oil or gas property goes on line 12, but only when you hold the interest as a trade or business, which in practice means an operating working interest. Royalty owners who simply receive checks report on Schedule E, and their depletion is taken there, so the line 12 version is rare. Where it does apply you compare cost depletion with percentage depletion and take the larger, subject to the limits on who may use percentage depletion at all. If you are a freelancer or service business, you have nothing for this line.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so a mineral or oil and gas interest lands on Line 12 without you sorting it.
Start for freeWhat a mineral or oil and gas interest is confused with
- Schedule E, schedule e, rental real estate
- A passive royalty interest is Schedule E income with depletion taken there; a working interest you operate is the Schedule C case that uses line 12.
- Line 13, depreciation and section 179 expense deduction
- Tangible well equipment, pumps and tanks are depreciated through Form 4562 to line 13, separately from the depletion claimed on the reserve itself.
- Line 16b, interest, other
- Interest on money borrowed to acquire or develop the interest is business interest on line 16b, not part of the depletion computation.
Examples that belong on line 12
- Percentage depletion on gross income from a working interest in a producing well
- Cost depletion on a purchased mineral interest, based on units produced against estimated reserves
- An operator comparing cost and percentage depletion and claiming the larger figure
- Depletion on a sand or limestone reserve held in an active extraction business
What does not belong here
- Royalty checks reported on a 1099-MISC from a passive interest, which belong on Schedule E
- Lease bonus payments, which have their own treatment and are not depletion
- Equipment and surface facilities, which are depreciation on line 13
- Intangible drilling costs, which are elected and deducted under their own rules rather than on line 12
The limit that applies
Percentage depletion is restricted: it is generally unavailable to integrated oil companies and is limited by both a share of gross income from the property and a share of the property's taxable income.
What to keep
Keep the acquisition documents that fix your basis, a reserve or reservoir engineer's estimate, and production statements for the year. Percentage depletion also needs the gross income from the property and the taxable income limit calculation.
Other expenses on line 12
| Expense | Line |
|---|---|
| gravel or sand extraction | Schedule C, Line 12 |
| timber cut from land you own | Schedule C, Line 12 |
Related lookups
- Do rental property expenses go on Schedule C?
- Where does capex go on Schedule C?
- Where does car loan interest go on Schedule C?
Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so a mineral or oil and gas interest lands on Line 12 without you sorting it.
Start for free