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Oil and gas lease income reported in Box 1 on 1099 misc

I have oil and gas lease income reported in Box 1 on 1099 misc. This lease income is on a royalty interest - I don't own the real estate.  Turbotax for my 2023 return lets me input the amount and then asks me for the source of that income.  The option that sounds closest is 'Rental income from the rental of real estate (Schedule E)' but it seems wrong since I don't own the real estate.  The other options deal with either farm rental or rental of personal property.  How should I be inputting this?

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5 Replies
DianeW777
Employee Tax Expert

Oil and gas lease income reported in Box 1 on 1099 misc

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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Oil and gas lease income reported in Box 1 on 1099 misc

This income is for a 3 year lease of my royalty interest in oil and gas.  I do not own the real estate.  When I had the info in Turbotax as rental of real estate, it asks me all kinds of questions that are not applicable such as property address, number of days rented, etc.  I deleted the item entirely.  As I am now entering the data under the oil and gas category I select 1099 MISC as the source.  I confirm that I have amounts in boxes 1-18.  It gives me those boxes and I enter the amount in box 1 and in boxes 17 and 18 for state.  Yet when I click continue, it brings up a summary and says I have not entered any income.  I've tried several times....I'm at a loss!

PatriciaV
Employee Tax Expert

Oil and gas lease income reported in Box 1 on 1099 misc

Most mineral leases of this type are one-time income. Delete the entry you have made and start over.

 

When you enter this Form 1099-MISC, check that this income was NOT related to a main job. Likewise, check that you received it only this year. Check that it didn't involve an intent to earn money.

 

This entry will result in your description and the amount in Box 1 appearing on Form 1040 Line 8 "Other Income." No Schedule E will be created.

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Oil and gas lease income reported in Box 1 on 1099 misc

Thanks, I will try that.  It is just confusing, because I had similar items in 2021 and 2019, and I input them in Turbotax under the oil and gas income section and they just showed up on Schedule E as royalty income with no deductions for depletion or production cost or taxes.  If it should still work that way I would need someone in tech support to walk through it with me to see what I'm doing wrong.  Or if there was a change in the tax code, maybe someone could point me to it.  I can provide contact info if needed.  Thanks again.

PatriciaV
Employee Tax Expert

Oil and gas lease income reported in Box 1 on 1099 misc

If you have reported this income in the past, it's not one-time income. If there isn't one already on your return, you should create a Rental Property (Schedule E) using the address of the property (if you know it) or your own address. Say it was rented for one day. Then report the lease payment as rental income. Leave everything else blank.

 

Use the 1099-MISC option when you enter the income for Schedule E. This will allow you to enter the State information in Boxes 17-18.

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