PLEASE Help those of us who are not clear on the differences between working interest and royalty interest trusts. What are the difficulties with the working interest trust verses royalty interests T and how do you spot the working interest trust. Any other help in educating us would be greatly appreciated and timely.
Another tax consequence is that you are supposedly liable for state taxes in each of the states from which royalties are derived, for the portion of the royalties you receive that originate in that state. Since SBR has royalty properties in a number of states, this is a burdensome requirement that I suspect some choose to ignore. My choice is to hold SBR only in tax deferred or tax free accounts (IRA's etc) rather than risk the liability and headache.
Another factor is "unrelated business income" (UBI).Income from limited partnerships and trusts which goes into an IRA is ruled by IRS to be UBI. If these holdings generate income of over $1000.00, will you not be required to file form 990-T and pay taxes, even though the income was within an IRA?
It is true that you get to deduct some amount for depletion but the calculations are somewhat of a pain in the butt, courtesy of your friends at the IRS. Surprise. There are two reasonable options: (1) buy SBR in a tax deferred account, such as an IRA or 401(k) so you don't have to do the calculations or (2) buy enough stock so it is worth the trouble to do the calculations.