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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
for out-of-pocket expenses from the following activity with continuity and regularity, your rental If you retain a royalty, an overriding royalty,
programs. activity is a business. or a net profit interest in a mineral property for
• Retired Senior Volunteer Program (RSVP). the life of the property, you have made a lease
• Foster Grandparent Program. Reporting business income and expenses. or a sublease, and any cash you receive for the
• Senior Companion Program. If you're in the business of renting personal assignment of other interests in the property is
property, report your income and expenses on ordinary income subject to a depletion allow-
Service Corps of Retired Executives Schedule C (Form 1040). The form instructions ance.
(SCORE). If you receive amounts for suppor- have information on how to complete them.
tive services or reimbursements for Part of future production sold (carved
out-of-pocket expenses from SCORE, don't in- Reporting nonbusiness income. If you out production payment). If you own mineral
clude these amounts in gross income. aren't in the business of renting personal prop- property but sell part of the future production, in
erty, report your rental income on Schedule 1 most cases you treat the money you receive
Volunteer tax counseling. Don’t include in (Form 1040), line 8l. from the buyer at the time of the sale as a loan
your income any reimbursements you receive from the buyer. Don’t include it in your income
for transportation, meals, and other expenses Reporting nonbusiness expenses. If you or take depletion based on it.
you have in training for, or actually providing, rent personal property for profit, include your When production begins, you include all the
volunteer federal income tax counseling for the rental expenses in the total amount you enter on proceeds in your income, deduct all the produc-
elderly (TCE). Schedule 1 (Form 1040), line 24b. tion expenses, and deduct depletion from that
You can deduct as a charitable contribution If you don't rent personal property for profit, amount to arrive at your taxable income from
your unreimbursed out-of-pocket expenses in your deductions are limited and you can't report the property.
taking part in the volunteer income tax assis- a loss to offset other income. See Activity not
tance (VITA) program. for profit under Other Income, later. Partnership Income
Volunteer firefighters and emergency medi- A partnership generally isn't a taxable entity.
cal responders. If you are a volunteer fire- Royalties
The income, gains, losses, deductions, and
fighter or emergency medical responder, do not credits of a partnership are passed through to
include in your income the following benefits Royalties from copyrights; patents; and oil, gas, the partners based on each partner's distribu-
you receive from a state or local government. and mineral properties are taxable as ordinary tive share of these items. For more information,
• Rebates or reductions of property or in- income. see Pub. 541.
come taxes you receive because of serv-
ices you performed as a volunteer fire- In most cases, you report royalties on Partner's distributive share. Your distributive
fighter or emergency medical responder. Schedule E (Form 1040). However, if you hold share of partnership income, gains, losses, de-
• Payments you receive because of services an operating oil, gas, or mineral interest or are ductions, or credits is generally based on the
you performed as a volunteer firefighter or in business as a self-employed writer, inventor, partnership agreement. You must report your
emergency medical responder, up to $50 artist, etc., report your income and expenses on distributive share of these items on your return
for each month you provided services. Schedule C (Form 1040). whether or not they are actually distributed to
you. However, your distributive share of the
The excluded income reduces any related Copyrights and patents. Royalties from copy- partnership losses is limited to the adjusted ba-
tax or contribution deduction. rights on literary, musical, or artistic works, and sis of your partnership interest at the end of the
similar property, or from patents on inventions, partnership year in which the losses took place.
are amounts paid to you for the right to use your
Business and work over a specified period of time. Royalties Partnership agreement. The partnership
are generally based on the number of units agreement usually covers the distribution of
Investment Income sold, such as the number of books, tickets to a profits, losses, and other items. However, if the
performance, or machines sold. agreement doesn't state how a specific item of
This section provides information on the treat- gain or loss will be shared, or the allocation sta-
ment of income from certain rents and royalties, Oil, gas, and minerals. Royalty income from ted in the agreement doesn't have substantial
and from interests in partnerships and S corpo- oil, gas, and mineral properties is the amount economic effect, your distributive share is fig-
rations. you receive when natural resources are extrac- ured according to your interest in the partner-
ted from your property. The royalties are gener- ship.
Note. You may be subject to the Net Invest- ally based on production or revenue and are
ment Income Tax (NIIT). The NIIT is a 3.8% tax paid to you by a person or company who leases Partnership return. Although a partnership
on the lesser of net investment income or the the property from you. generally pays no tax, it must file an information
excess of your modified adjusted gross income return on Form 1065. This shows the result of
(MAGI) over a threshold amount. For details, Depletion. If you're the owner of an eco- the partnership's operations for its tax year and
see Form 8960 and its instructions. nomic interest in mineral deposits or oil and gas the items that must be passed through to the
wells, you can recover your investment through partners.
Income from sales at auctions, includ- the depletion allowance.
! ing online auctions, may be business Schedule K-1 (Form 1065). You should
CAUTION income. For more information, see Pub. Coal and iron ore. Under certain circum- receive from each partnership in which you're a
334. stances, you can treat amounts you receive member a copy of Schedule K-1 (Form 1065)
from the disposal of coal and iron ore as pay- showing your share of income, deductions,
ments from the sale of a capital asset, rather credits, and tax preference items of the partner-
Rents From Personal than as royalty income. For information about ship for the tax year. Keep Schedule K-1 for
Property gain or loss from the sale of coal and iron ore, your records. Don’t attach it to your Form 1040
see chapter 2 of Pub. 544. or 1040-SR, unless you're specifically required
If you rent out personal property, such as equip- Sale of property interest. If you sell your to do so.
ment or vehicles, how you report your income complete interest in oil, gas, or mineral rights,
and expenses is in most cases determined by: the amount you receive is considered payment Partner's return. You must generally report
• Whether or not the rental activity is a busi- for the sale of section 1231 property, not royalty partnership items on your individual return the
ness, and income. Under certain circumstances, the sale same way as they're reported on the partner-
• Whether or not the rental activity is con- is subject to capital gain or loss treatment as ex- ship return. That is, if the partnership had a cap-
ducted for profit. plained in the Instructions for Schedule D (Form ital gain, you report your share as explained in
In most cases, if your primary purpose is in- 1040). For more information on selling section the Instructions for Schedule D (Form 1040).
come or profit and you're involved in the rental 1231 property, see chapter 3 of Pub. 544.
Publication 525 (2023) 17
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