Royalty Income: Basic Rules
Published November 6, 2026
A royalty is money you receive for letting someone use your property. Publication 525 (2025), Taxable and Nontaxable Income, explains how royalties are taxed. This guide is general information. It is not advice about your return.
What counts as a royalty
The publication describes three main kinds of royalties.
- Copyrights. These are royalties from literary, musical, or artistic works, and similar property.
- Patents. These are royalties from inventions.
- Oil, gas, and minerals. These are royalties from natural resources taken from your property.
The publication says copyright and patent royalties are amounts paid to you for the right to use your work over a specified period. They are usually based on units sold, such as books, tickets to a performance, or machines sold. Oil, gas, and mineral royalties are usually based on production or revenue. The person or company that leases your property pays them to you.
How royalties are taxed
The publication says royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.
Where to report them
In most cases, you report royalties on Schedule E (Form 1040). The publication makes one exception. If you hold an operating oil, gas, or mineral interest, or you are in business as a self-employed writer, inventor, artist, or similar worker, you report your income and expenses on Schedule C (Form 1040).
For the rules on rental income, see rental income and Schedule E basics. For more on business income, see Schedule C business income and expenses.
Depletion
If you own an economic interest in mineral deposits or oil and gas wells, the publication says you can recover your investment through the depletion allowance. Depletion is the allowance that applies to that investment.
Coal and iron ore
Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset. They are not royalty income in that case. The publication refers you to chapter 2 of Publication 544 for the rules.
Selling your whole interest
If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is payment for the sale of section 1231 property. It is not royalty income. Depending on the facts, the sale may be treated as a capital gain or loss. The publication refers you to the Schedule D instructions and chapter 3 of Publication 544.
Keeping a royalty you retain
The publication explains a special rule. If you keep a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease. Any cash you receive for assigning other interests in the property is ordinary income. That cash is subject to a depletion allowance.
Simple steps
- Identify the source. Is it a copyright, a patent, or a mineral property?
- Decide the schedule. Use Schedule E for most royalties. Use Schedule C if you are a self-employed writer, inventor, or artist, or you hold an operating interest.
- Keep records of each payment, the date, and the payer.
- Keep copies of royalty statements from each payer.
- Keep records of any costs you paid to earn the royalty. These records are general good practice.
- If you receive a Form 1099 for royalties, compare its amount with your own records before you file.
Self-employed people also pay self-employment tax on business income. See self-employment tax basics and Schedule SE. For the form that payers use for many royalty payments, see Form 1099-MISC for rent, prizes, and other income.
Upload your documents and answer a few simple questions to start your return.
Sources: Sources: IRS, Publication 525 (2025), Taxable and Nontaxable Income (https://www.irs.gov/pub/irs-pdf/p525.pdf) This is general information, not advice about your specific return.
