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null159
New Member

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

 
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Accepted Solutions
GeoffreyG
New Member

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

The answer to your question is that you should treat this income as a Form 1040, Schedule E "royalty" item.  In other words, you will enter your wind turbine income onto Schedule E, Part 1, which will then "flow" back onto your main Form 1040 tax return, under Line 17, as ordinary taxable income -- but not subject to Social Security or Medicare taxes, as would self-employment income.

Furthermore, the reason we want to enter this as "royalty" rather than as "rental" income (even though both types of income are reported on the same Schedule E), is that we need to avoid any issues with depreciation or complications thereof.  Land rights, you see, which is what you are really renting to the wind farm company, does not ever depreciate for tax purposes.  Thus, royalty income is the appropriate classification here.

To help you get started with the data entry for Schedule E, you can follow these steps.

First, open up your TurboTax tax return and be working on it anywhere.  Second, locate the Find / Search box on your screen.  Third, type in the exact search words "schedule e" and click the button.  Fourth, click the "Jump To" link that will appear in the search results beneath.  Fifth, click on the "Continue" button and proceed to follow all of the on-screen instructions and subsequent questions that will appear in sequence.

You will further want to enter your royalty income as a type that is classified as "None of the Above" in TurboTax.  Again, doing so will avoid unnecessary complications and distractions in the program . . . in this instance something called "depletion," which is the natural resource equivalent (roughly) to depreciation of a rental property.  However, the wind itself never depletes, just as land never depreciates for tax purposes, and so that is how you will want to answer the TurboTax questions.

Similarly, despite whatever box may be used on your Form 1099-MISC by the wind farm company, you will want to enter your "rent / royalty" income in the manner just described, as that will ensure the proper tax treatment on Schedule E, and on your overall tax return.

You may additionally wish to read the following IRS.gov webpage, which has some useful information on natural resource property, as it relates to income taxes.

https://www.irs.gov/uac/newsroom/tips-on-reporting-natural-resource-income


Finally, please see the attached screen-capture images below for a visual guide to making your data entries.  While only (2) of the main steps are shown here, the rest of the in-program TurboTax questions should be relatively easy to answer.  Simply click the images to open and view.

Thank you for asking about this important subject.


View solution in original post

6 Replies
GeoffreyG
New Member

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

The answer to your question is that you should treat this income as a Form 1040, Schedule E "royalty" item.  In other words, you will enter your wind turbine income onto Schedule E, Part 1, which will then "flow" back onto your main Form 1040 tax return, under Line 17, as ordinary taxable income -- but not subject to Social Security or Medicare taxes, as would self-employment income.

Furthermore, the reason we want to enter this as "royalty" rather than as "rental" income (even though both types of income are reported on the same Schedule E), is that we need to avoid any issues with depreciation or complications thereof.  Land rights, you see, which is what you are really renting to the wind farm company, does not ever depreciate for tax purposes.  Thus, royalty income is the appropriate classification here.

To help you get started with the data entry for Schedule E, you can follow these steps.

First, open up your TurboTax tax return and be working on it anywhere.  Second, locate the Find / Search box on your screen.  Third, type in the exact search words "schedule e" and click the button.  Fourth, click the "Jump To" link that will appear in the search results beneath.  Fifth, click on the "Continue" button and proceed to follow all of the on-screen instructions and subsequent questions that will appear in sequence.

You will further want to enter your royalty income as a type that is classified as "None of the Above" in TurboTax.  Again, doing so will avoid unnecessary complications and distractions in the program . . . in this instance something called "depletion," which is the natural resource equivalent (roughly) to depreciation of a rental property.  However, the wind itself never depletes, just as land never depreciates for tax purposes, and so that is how you will want to answer the TurboTax questions.

Similarly, despite whatever box may be used on your Form 1099-MISC by the wind farm company, you will want to enter your "rent / royalty" income in the manner just described, as that will ensure the proper tax treatment on Schedule E, and on your overall tax return.

You may additionally wish to read the following IRS.gov webpage, which has some useful information on natural resource property, as it relates to income taxes.

https://www.irs.gov/uac/newsroom/tips-on-reporting-natural-resource-income


Finally, please see the attached screen-capture images below for a visual guide to making your data entries.  While only (2) of the main steps are shown here, the rest of the in-program TurboTax questions should be relatively easy to answer.  Simply click the images to open and view.

Thank you for asking about this important subject.


pmcclure1
Returning Member

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

I am a little confused. I have 1099 for farm rental for a farm that we have had for many years and have entered as i normally do.

this year, we picked up 1099 from a wind turbine, with money in Box 1-rents and also in box 3 other income. I understand that box 3 needs to be entered as royalty to avoid SE tax.

I am having trouble entering box 1 and box 3 in appropriate places in turbotax system Any further advice or screen shots? Thanks

Carl
Level 15

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

Just treat the 1099-MISC "as if" the income is reported in box 2, and not any other box. It'll work out fine. But do keep all your paperwork on this for future reference if ever needed.

 

pmcclure1
Returning Member

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

So, I can add these 2 together and put the total 8n box 1? This won't trigger anything, since they are in separate boxes? The other income doesn't have to be classified as royalties?

Carl
Level 15

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

I'm sorry, as I just re-read your post and missed the rental income explanation.

You'll treat box 3 "as if" it was entered in box 2.

Note that with the TTX program, you must treat this "as if" you received two physically separate 1099-MISCS. One has the rental income reported in box 1, and the other 1099-MISC has the royalty income reported in box 2. This is the only way the program can handle it correctly so that the rental income shows up in column A of the SCH E, and the royalty income shows up in column B of the SCH E.

So you will enter the 1099-MISC twice. Once, using on the amount in box 1. Then again using only the amount in box 3, but enter that amount in box 2 in the program.

 

pmcclure1
Returning Member

I received a 1099 misc from an energy company that put a wind turbine on my land. I have a rental agreement but the payment was listed as other income. Where do I repor

Thank you- I will give this a try and come back here if I have further questions.

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