Oil & Gas Lease Bonus & Royalty Payments

Forum|Forum|1 year ago
March 16, 2025
2 replies
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2024: I received two 1099-MISC from a gas lease. They both pertain to the same property. One 1099 reports income from a bonus payment that is listed as "rental" in Box 1. The other 1099 reports royalty income in Box 2. I am an owner of mineral rights and NOT an owner of the above ground real estate. Each 1099 was entered separately (i.e., I entered two separate 1099-MISC; one for the rental and one for the royalty income). This creates two separate Schedule E worksheets -- one for the rental and one for the royalty. The rental one is the one creating the problem.

Upon review, I get an error regarding the bonus payment reporting that I must show the "rental" income and "royalty" income as separate properties on the Schedule E. The error is flagged on the rental worksheet. However, when I look at the Schedule E the rental and royalty income are listed as separate properties in columns A & B. So they appear to be entered correctly but I get this weird error indicating I have to show them separately -- but they are already entered separately.

DianeW777

Yes, some of the details require a separate entry. The IRS systems can be challenging in certain respects. TurboTax must meet the requirements to use e-file.

Based on your question and comments you did do two separate entries my advice is to remove/delete one, then go directly to the entry of the one deleted. You'll need to delete one Form l1099-MISC.

If you're using TurboTax Online software and need to delete a form, click here.
If you're using TurboTax Desktop software and need to delete a form, click here.

Next go directly to either rent or royalty income to enter the one deleted. Search > type rentals or royalties > Click the Jump to... link

Please update here if you need further assistance and we will help.

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wvkayakAuthor

Thank you for your prompt response however, I do not understand your suggestion. I've used TurboTax for a number of years but an Oil & Gas Lease Bonus and Royalty is a new issue that I've not encountered in the past.

The (one and only) error I get when I do a TurboTax Review is: "Schedule E Worksheet (address): Line 3- 1099-misc -- income from rental real estate and income from royalties must be reported as separate properties on Schedule E."

The figure shown on the lease bonus Schedule E Worksheet Line 3 is red (presumably the cause of the error). This figure comes from a 1099-Misc that relates to a lease bonus payment made to us for signing a gas lease. The lease bonus and the royalty payments show up on Schedule E in Columns A (from 1099-Misc, Box 2 Royalties) and Column B (from a separate 1099-Misc, Box 1 Rents); so it appears that they ARE reported as separate properties on Schedule E (hence my confusion: What is causing this error?).

A related question is: Why do the "addresses" I entered on the two 1099-Misc forms NOT automatically populate into Schedule E Line 1a (A) and (B) -- "Physical address of each property (street, city, state, ZIP code)"? For "Type of Property" (Schedule E Line 1b), both the royalty and rent (i.e., lease bonus) are 6 Royalties.

Any further assistance you can provide would be appreciated. Thanks.

PatriciaV

Unfortunately, you can't report both rental income and royalty income under the same property on Schedule E (this is a TurboTax program limitation).

To resolve this, enter two separate properties (activities) under Rental Properties & Royalties.

From to the list of Rental/Royalty Properties, review the entries for the Royalty Property that received royalty income on Form 1099-MISC. Be sure you checked the box for "Royalty" in the Property Profile section.

After you've completed this review, add a new rental property. You can keep the same address but enter a different property description and be sure to mark this as "Rental". Enter the income reported as "Rents" on Form 1099-MISC.

You can report your expenses under the Rental Property, as well as any other rental income.

With regards to the property address, the IRS instructions for a royalty property say address lines 1 and 2 should be left blank, but sometimes the program won't let you continue without an address. Your address entries are preserved on the individual Schedule E Worksheets that are part of your complete return (not an IRS form).

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