Black Stone Minerals (BSM) issues a K-1. BSM is a mineral royalty company, not a pipeline MLP. Your K-1 reports depletion deductions, not depreciation. This distinction changes your basis erosion rate, your recapture exposure, and potentially your state filing obligations across 20+ states.
By Lucas Andersen — Last updated March 6, 2026
BSM’s depletion-based K-1 requires different basis tracking than pipeline MLPs. → Track your BSM basis free
Here is the genuinely complex part that no other guide explains. For mineral interest MLPs like BSM, percentage depletion under §613 can sometimes exceed your remaining tax basis without triggering §731 gain. This is unique to mineral interests and does NOT apply to pipeline MLPs, where depreciation stops reducing basis once it reaches zero.
The mechanism: percentage depletion is calculated as a percentage of gross income from the mineral property, subject to a 65% taxable income limitation. Because this calculation is independent of your cost basis, it can create a situation where your depletion deduction continues even after your tax basis in the property reaches zero. For pipeline MLPs, depreciation deductions cannot reduce basis below zero — they simply stop. For mineral interests, the depletion continues as an above-the-line deduction, but your partnership basis for §731 distribution purposes is tracked separately. This is genuinely complex territory — if your BSM basis is approaching zero, consult a tax advisor familiar with mineral interest partnerships before your next K-1 arrives.
BSM’s 2025 K-1 is expected by mid-March 2026. Download at taxpackagesupport.com/bsm. BSM also provides tax information at investor.blackstoneminerals.com.
Black Stone Minerals owns mineral and royalty interests across approximately 40+ US states, concentrated in oil and gas producing basins. Unlike pipeline MLPs that earn fees for transporting hydrocarbons, BSM earns royalties on production from its mineral acreage. BSM does not operate wells — it collects royalties from operators who drill on its mineral interests. This passive mineral ownership model creates the highest return-of-capital percentages of almost any MLP.
BSM’s K-1 generates depletion deductions from mineral rights being consumed, not depreciation from infrastructure. Three key differences: (1) BSM’s return-of-capital percentage is among the highest of all MLPs — historically very high, meaning most of each distribution reduces basis. (2) K-1 depletion deductions can exceed the cash distribution itself, creating basis erosion faster than the distribution rate suggests. (3) Recapture at sale may include §1254 depletion recapture, which is separate from the §1245 depreciation recapture that pipeline MLP investors face. See our NRP guide for another mineral interest MLP with similar mechanics.
BSM’s distributions fluctuate with commodity prices. The Q4 2025 distribution was $0.30/unit; full-year 2025 totaled approximately $1.28/unit across all four quarters. Worked example: 500 units at $16/unit ($8,000 basis). At an illustrative 80–90% return of capital on ~$1.28/unit annual distributions, basis erodes ~$1.02–$1.15/unit per year. After 5 years: IRS-adjusted basis approximately $5,125–$5,450 vs broker’s $8,000 — a gap of $2,550–$2,875 (32–36%). If depletion deductions exceed distributions, the gap widens further. Verify against your actual K-1 — BSM’s variable distributions make extrapolation unreliable.
BSM’s mineral rights are geographically dispersed across dozens of states. Your K-1 state supplement may list 20 or more states with income allocations. Unlike pipeline MLPs where you can identify 3–5 primary operating states, BSM scatters tiny amounts across a wide map. The practical guidance: most of these individual state allocations are de minimis (often under $50). Focus on your home state plus any state showing more than a few hundred dollars. But the sheer number of states on the K-1 supplement is intimidating for first-time holders — don’t panic. Most individual investors owe nothing in most of those states. See our MLP State Filing Requirements guide for state-by-state thresholds.
Pipeline MLPs like EPD and MPLX have stable, growing distributions backed by fee-based contracts. BSM’s distributions fluctuate with commodity prices because royalty income directly tracks oil and gas production revenue. A high oil price quarter means a higher distribution; a low price quarter means less. This makes basis erosion less predictable year-to-year — you cannot simply extrapolate one year’s ROC percentage forward. Track each K-1 individually.
Applying pipeline MLP depreciation rules to a mineral royalty MLP. Ignoring §1254 depletion recapture risk when selling. Panicking at 20+ state allocations on the K-1 supplement (most are de minimis). Assuming a stable ROC percentage when BSM’s distributions are variable. Not tracking basis annually because “the distribution is small” — depletion deductions can erode basis faster than the distribution amount suggests.