I am confused with the reporting of a 1099-misc for a mineral rights lease agreement. I put in the "rents" amount but what is the depletion amount that showed up?

[PaulaM · Accepted solution]

Is your 1099-MISC amount in box 1 for rents or box 2 for royalties? 

For box 1, enter as a rental. There will be questions that don't apply because rental is generally used for real estate. None the less, this is where it belongs if you have a Box 1 amount. No depletion for Box 1.

For box 2, enter as a royalty. You are allowed a 15% depletion for mineral royalties. If you have box 2 royalties, be sure to check if your state has an additional deduction for depletion. OK is one state the does.

Both rentals and royalties begin in the same section. Mark the radio button for rent or royalty property or payment.

[edited 2/6/18| 6pm pst ]

[PaulaM]

see edited answer above.

[lis-2u]

This keeps having me answer questions like I am the owner of property and have tenants. It is asking what type of rental etc.

[PaulaM]

Yes it will. Just keep going until you get to the part where you can enter the 1099 Misc as income.

[PaulaM]

Give the property location, select 'other' for type.

[PaulaM]

Enter lease agreement for the description. Enter 'none of the above' for the Do any of these situations apply to this property question.Yes the property was rented and yes for fair rental price. Answer the ownership question and the active participation. A few more questions and you will reach the summary page where you can enter the 1099-MISC income.

[PaulaM]

It's sounds strange, but this is how the IRS handles mineral lease agreements. As rents, box 1.