Are royalties taxable income?

The rule

The Royalties section of Publication 525 opens with one sentence: royalties from copyrights; patents; and oil, gas and mineral properties are taxable as ordinary income. They do not get capital-gain rates. The only question is which form carries them. In most cases you report royalties on Schedule E (Form 1040). If you hold an operating oil, gas or mineral interest, or you are in business as a self-employed writer, inventor, artist or similar, you report your income and expenses on Schedule C (Form 1040).

Copyrights and patents

Royalties from copyrights on literary, musical or artistic works and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Royalties are generally based on the number of units sold, such as books, tickets to a performance or machines sold. An author paid a percentage of each book sold, or a songwriter paid per use of a song, fits this description. A one-time sale of all your rights is a different transaction from licensing them for royalties.

Name, image and likeness

The 2025 edition of the publication addresses name, image and likeness (NIL) payments to student-athletes. NIL refers to use of a student-athlete’s name, image or likeness for commercial purposes through marketing and promotional work. The publication lists autograph signings, product endorsements, licensing and merchandising agreements, advertising campaigns, social media posts, and teaching camps or lessons as examples. It places this description in the Royalties section; the publication does not say here which schedule each type of NIL payment goes on, so consult the form instructions or a tax professional for that.

Oil, gas and minerals

Royalty income from oil, gas and mineral properties is the amount you receive when natural resources are extracted from your property, generally based on production or revenue and paid by the person or company that leases the property from you. If you own an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. Under certain circumstances, amounts from disposal of coal and iron ore can be treated as proceeds from the sale of a capital asset instead of royalty income; see chapter 2 of Publication 544.

Selling an interest versus keeping a royalty

If you sell your complete interest in oil, gas or mineral rights, the amount is payment for the sale of section 1231 property, not royalty income, and under some circumstances capital gain or loss treatment applies (see the Instructions for Schedule D and chapter 3 of Publication 544). If you keep a royalty, an overriding royalty or a net profit interest in the property for its life, you have made a lease or sublease, and cash you receive for assigning other interests is ordinary income subject to a depletion allowance.

If you own mineral property and sell part of the future production (a carved-out production payment), you generally treat the money from the buyer at the time of sale as a loan: do not include it in income or take depletion on it. When production begins you include all the proceeds in income, deduct all production expenses, and deduct depletion to arrive at taxable income from the property.

Worked example

A self-published author who does not run a business receives $6,400 in book royalties and has $900 of related costs. The net $5,500 is ordinary income on Schedule E. A mineral owner who leases land to an operator and receives $12,000 of production-based royalties reports them on Schedule E, and may claim depletion if they own an economic interest. A freelance illustrator in business as a self-employed artist, by contrast, reports licensing royalties and expenses on Schedule C. The calculator above gives the net figure; it does not decide the schedule.

Reporting forms and limits

Royalty income is taxable whether or not you receive an information return from the payer. Self-employment tax can apply to Schedule C income; see the self-employment tax calculator. This page covers the Royalties section of Publication 525 (2025) only.

Related Publication 525 topics

More from the same IRS publication: Is partnership income taxable income?, Is bartering taxable income?, Is restricted stock taxable income?.

Sources

• IRS Publication 525, Taxable and Nontaxable Income (2025): the “Royalties” section and the sections it cross-references. Read November 2, 2026.

Edition read: Publication 525 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.