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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Volunteer firefighters and emergency medi- a loss to offset other income. See Activity not amount to arrive at your taxable income from
cal responders. If you are a volunteer fire- for profit under Other Income, later. the property.
fighter or emergency medical responder, do not
include in your income the following benefits Royalties Partnership Income
you receive from a state or local government.
• Rebates or reductions of property or in- A partnership generally isn't a taxable entity.
come taxes you receive because of serv- Royalties from copyrights; patents; and oil, gas, The income, gains, losses, deductions, and
ices you performed as a volunteer fire- and mineral properties are taxable as ordinary credits of a partnership are passed through to
fighter or emergency medical responder. income. the partners based on each partner's distribu-
• Payments you receive because of services tive share of these items. For more information,
you performed as a volunteer firefighter or In most cases, you report royalties on see Pub. 541.
emergency medical responder, up to $50 Schedule E (Form 1040). However, if you hold
for each month you provided services. an operating oil, gas, or mineral interest or are Partner's distributive share. Your distribu-
The excluded income reduces any related in business as a self-employed writer, inventor, tive share of partnership income, gains, losses,
artist, etc., report your income and expenses on
tax or contribution deduction. Schedule C (Form 1040). deductions, or credits is generally based on the
partnership agreement. You must report your
Business and Copyrights and patents. Royalties from distributive share of these items on your return
whether or not they are actually distributed to
copyrights on literary, musical, or artistic works,
Investment Income and similar property, or from patents on inven- you. However, your distributive share of the
partnership losses is limited to the adjusted ba-
tions, are amounts paid to you for the right to
use your work over a specified period of time. sis of your partnership interest at the end of the
This section provides information on the treat- Royalties are generally based on the number of partnership year in which the losses took place.
ment of income from certain rents and royalties, units sold, such as the number of books, tickets
and from interests in partnerships and S corpo- to a performance, or machines sold. Partnership agreement. The partnership
rations. agreement usually covers the distribution of
Oil, gas, and minerals. Royalty income from profits, losses, and other items. However, if the
Note. You may be subject to the Net Invest- oil, gas, and mineral properties is the amount agreement doesn't state how a specific item of
ment Income Tax (NIIT). The NIIT is a 3.8% tax you receive when natural resources are extrac- gain or loss will be shared, or the allocation sta-
on the lesser of net investment income or the ted from your property. The royalties are gener- ted in the agreement doesn't have substantial
excess of your modified adjusted gross income ally based on production or revenue and are economic effect, your distributive share is fig-
(MAGI) over a threshold amount. For details, paid to you by a person or company who leases ured according to your interest in the partner-
see Form 8960 and its instructions. the property from you. ship.
Income from sales at auctions, includ- Depletion. If you're the owner of an eco- Partnership return. Although a partnership
! ing online auctions, may be business nomic interest in mineral deposits or oil and gas generally pays no tax, it must file an information
CAUTION income. For more information, see wells, you can recover your investment through return on Form 1065. This shows the result of
Pub. 334. the depletion allowance. For information on this the partnership's operations for its tax year and
subject, see chapter 9 of Pub. 535. the items that must be passed through to the
Rents From Personal Coal and iron ore. Under certain circum- partners.
Property stances, you can treat amounts you receive Schedule K-1 (Form 1065). You should
from the disposal of coal and iron ore as pay- receive from each partnership in which you're a
If you rent out personal property, such as equip- ments from the sale of a capital asset, rather member a copy of Schedule K-1 (Form 1065)
ment or vehicles, how you report your income than as royalty income. For information about showing your share of income, deductions,
and expenses is in most cases determined by: gain or loss from the sale of coal and iron ore, credits, and tax preference items of the partner-
• Whether or not the rental activity is a busi- see chapter 2 of Pub. 544. ship for the tax year. Keep Schedule K-1 for
ness, and your records. Don’t attach it to your Form 1040
Sale of property interest. If you sell your
• Whether or not the rental activity is con- complete interest in oil, gas, or mineral rights, or 1040-SR, unless you're specifically required
ducted for profit. the amount you receive is considered payment to do so.
In most cases, if your primary purpose is in- for the sale of section 1231 property, not royalty Partner's return. You must generally report
come or profit and you're involved in the rental income. Under certain circumstances, the sale partnership items on your individual return the
activity with continuity and regularity, your rental is subject to capital gain or loss treatment as same way as they're reported on the partner-
activity is a business. See Pub. 535 for details explained in the Instructions for Schedule D ship return. That is, if the partnership had a cap-
on deducting expenses for both business and (Form 1040). For more information on selling ital gain, you report your share as explained in
not-for-profit activities. section 1231 property, see chapter 3 of Pub. the Instructions for Schedule D (Form 1040).
544. You report your share of partnership ordinary
Reporting business income and expenses. If you retain a royalty, an overriding royalty, income on Schedule E (Form 1040).
If you're in the business of renting personal or a net profit interest in a mineral property for
property, report your income and expenses on the life of the property, you have made a lease In many cases, Schedule K-1 (Form
Schedule C (Form 1040). The form instructions or a sublease, and any cash you receive for the TIP 1065) will tell you where to report an
have information on how to complete them. assignment of other interests in the property is item of income on your individual re-
ordinary income subject to a depletion allow- turn.
Reporting nonbusiness income. If you ance.
aren't in the business of renting personal prop- Qualified joint venture. If you and your
erty, report your rental income on Schedule 1 Part of future production sold (carved spouse each materially participate as the only
(Form 1040), line 8l. out production payment). If you own mineral members of a jointly owned and operated busi-
property but sell part of the future production, in ness, and you file a joint return for the tax year,
Reporting nonbusiness expenses. If you most cases you treat the money you receive you can make a joint election to be treated as a
rent personal property for profit, include your from the buyer at the time of the sale as a loan qualified joint venture instead of a partnership.
rental expenses in the total amount you enter from the buyer. Don’t include it in your income To make this election, you must divide all items
on Schedule 1 (Form 1040), line 24b. or take depletion based on it. of income, gain, loss, deduction, and credit at-
If you don't rent personal property for profit, When production begins, you include all the tributable to the business between you and your
your deductions are limited and you can't report proceeds in your income, deduct all the produc- spouse in accordance with your respective
tion expenses, and deduct depletion from that

Publication 525 (2022) Page 17