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contreras432
Returning Member

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

Royalties from Oil and gas
9 Replies
DaveF1006
Expert Alumni

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

It depends. To clarify, what type of a tax return are you working on and what type of a tax form is this payment reported on?

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contreras432
Returning Member

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

It's a 1099 Misc

DianeW777
Expert Alumni

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

Answer 'No' if your Form 1099-MISC reports only your share of the royalty income and you are not transferring any part of that income to someone else.

 

You can also use depletion as an expense for this royalty income.

 

Percentage Depletion Allowance

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.

 

This will be entered on your Schedule E - Sign into TurboTax

  • Click on search at top right and enter schedule e > Press enter > Click on Jump to schedule e
  • Click Yes - click appropriate box then Continue - Edit or Add your property 
  • Confirm information and Continue until you complete this section
contreras432
Returning Member

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

I have prod/taxes section on my form and theres no place to put that info while filling out the form? 

DaveF1006
Expert Alumni

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

It depends.  To clarify, was this reported on a 1099-MISC form or a K-1? 

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contreras432
Returning Member

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

1099- Misc

DaveF1006
Expert Alumni

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

Yes, this is how to report this income and claim the expenses that are associated with this income. Before we begin this process, delete your 1099-MISC where you entered before. i just want to make sure we have a clean copy before proceeding. To delete, go to tax tools>tools>delete a form>1099-MISC.

  1. Now open Turbo tax if it is not already opened
  2. Go to federal>income and expenses>rental properties and royalties>Rental Properties and Royalties (Sch E)
  3. What are you here to report? Royalty 
  4. Then it will ask information where this royalty is located. You may have entered this already but if you haven't, this may be useful.
  5. Then answer the next few questions when it asks more information about your royalty.
  6. I know you asked earlier about a question that asked if you were a partial owner. Here you will say no if all of the income on the 1099-MISC is your income.
  7. Once the profile is complete, it will ask about your income. Here is where the 1099-MISC information is entered. If this is the path you followed before, then forgive me for listing this. I just wish to make sure you do this 100% correctly.
  8. Keep continuing in the return.  You are not done yet.
  9. After an explanation on the difference between assets and expenses, you can begin listing your expenses regarding taxes or products.  Please note, if there was federal income tax withheld, there is a section in Box 4 of your 1099-MISC to enter that. Property taxes are entered as expenses.
  10. As you scroll through expenses, taxes are at top of the list. All property taxes will be listed here.
  11. As you scroll through remaining expenses, if there is a particular category not listed here, at the bottom of the form is miscellaneous expenses. You could list these here with a brief explanation.
  12. I hope this helps.

 

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contreras432
Returning Member

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

On my 1099 Misc for rhe royalties i noticed it did a depletion? Is that a must

DawnC
Expert Alumni

It's asking me if i was a partial owner or distributed part of the royalty income to someone else? There is 4 of us that recieve payment for one property.

Yes, you need to take the tax deduction because you must reduce the basis of your property by the depletion allowed or allowable, whichever is greater, but not below zero.  

 

If you have an economic interest in a mineral property or standing timber, you can take a deduction for depletion. More than one person can have an economic interest in the same mineral deposit or timber. In the case of leased property, the depletion deduction is divided between the lessor and the lessee.    You have an economic interest if both the following apply.

  • You have acquired by investment any interest in mineral deposits or standing timber.

  • You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment.

A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest.   For more details on depletion deductions, see this IRS publication.  

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