Overriding Royalty

Overriding Royalty

Overriding Royalty means:
an interest carved out of a lessee's working interest, entitling the holder to receive a fraction (e.g., one-sixteenth) of production or the proceeds therefrom free of any production or operating costs, but not hauling charges or state severance taxes. For federal income tax purposes, an overriding royalty interest is real property. If held by an investor, it is a capital asset. If held for resale to customers in the ordinary course of a trade or business however, it is not a capital asset. If held by an operator, it may be a Section 1231 asset. Such income is subject to depletion, cost or percentage, as the case may be.

See also other Tax Terms and Definitions in U.S.A.

royalty.

See also the entries Income Tax and State Income Tax in the American Encyclopedia of Law.


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