It depends. If the oil and gas company is not removing the oil or gas, then the money received is actually a lease and not royalties. This may be the reason the company is placing the amount in Box 1, instead of Box 2 on the 1099-MISC. If this is the case then it should be rental income. Sometimes a lease is entered into for several years and no extraction ever takes place (not common, but does happen).
If it is actually royalties, then the company made a mistake and you should list the amount in Box 2 then select royalty income.
- Don't forget to use your allowable depletion for your royalty income. For oil and gas royalty owners, percentage depletion is calculated using a rate of 15% of the gross income based on your average daily production of crude oil or natural gas, up to your depletable oil or natural gas quantity.
- Oil & Gas Depletion Percentage
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