Oil & Gas Lease Bonus & Royalty Payments

[wvkayak]

2024: I received two 1099-MISC from a gas lease. They both pertain to the same property. One 1099 reports income from a bonus payment that is listed as "rental" in Box 1.  The other 1099 reports royalty income in Box 2. I am an owner of mineral rights and NOT an owner of the above ground real estate. Each 1099 was entered separately (i.e., I entered two separate 1099-MISC; one for the rental and one for the royalty income). This creates two separate Schedule E worksheets -- one for the rental and one for the royalty.  The rental one is the one creating the problem.

Upon review, I get an error regarding the bonus payment reporting that I must show the "rental" income and "royalty" income as separate properties on the Schedule E.  The error is flagged on the rental worksheet.  However, when I look at the Schedule E  the rental and royalty income are listed as separate properties in columns A & B.  So they appear to be entered correctly but I get this weird error indicating I have to show them separately -- but they are already entered separately. 

[DianeW777]

Yes, some of the details require a separate entry. The IRS systems can be challenging in certain respects. TurboTax must meet the requirements to use e-file.

Based on your question and comments you did do two separate entries my advice is to remove/delete one, then go directly to the entry of the one deleted. You'll need to delete one Form l1099-MISC. 

• If you're using TurboTax Online software and need to delete a form, click here.
• If you're using TurboTax Desktop software and need to delete a form, click here.

Next go directly to either rent or royalty income to enter the one deleted. Search > type rentals or royalties > Click the Jump to... link

Please update here if you need further assistance and we will help.

[wvkayak]

Thank you for your prompt response however, I do not understand your suggestion.  I've used TurboTax for a number of years but an Oil & Gas Lease Bonus and Royalty is a new issue that I've not encountered in the past.

The (one and only) error I get when I do a TurboTax Review is: "Schedule E Worksheet (address): Line 3- 1099-misc  -- income from rental real estate and income from royalties must be reported as separate properties on Schedule E." 

The figure shown on the lease bonus Schedule E Worksheet Line 3 is red (presumably the cause of the error).  This figure comes from a 1099-Misc that relates to a lease bonus payment made to us for signing a gas lease. The lease bonus and the royalty payments show up on Schedule E in Columns A (from 1099-Misc, Box 2 Royalties) and Column B (from a separate 1099-Misc, Box 1 Rents); so it appears that they ARE reported as separate properties on Schedule E (hence my confusion: What is causing this error?).

A related question is: Why do the "addresses" I entered on the two 1099-Misc forms NOT automatically populate into Schedule E Line 1a (A) and (B) -- "Physical address of each property (street, city, state, ZIP code)"?  For "Type of Property" (Schedule E Line 1b), both the royalty and rent (i.e., lease bonus) are 6 Royalties.

Any further assistance you can provide would be appreciated.  Thanks.

[PatriciaV]

Unfortunately, you can't report both rental income and royalty income under the same property on Schedule E (this is a TurboTax program limitation).

To resolve this, enter two separate properties (activities) under Rental Properties & Royalties.

From to the list of Rental/Royalty Properties, review the entries for the Royalty Property that received royalty income on Form 1099-MISC. Be sure you checked the box for "Royalty" in the Property Profile section.

After you've completed this review, add a new rental property. You can keep the same address but enter a different property description and be sure to mark this as "Rental". Enter the income reported as "Rents" on Form 1099-MISC.

You can report your expenses under the Rental Property, as well as any other rental income.

With regards to the property address, the IRS instructions for a royalty property say address lines 1 and 2 should be left blank, but sometimes the program won't let you continue without an address. Your address entries are preserved on the individual Schedule E Worksheets that are part of your complete return (not an IRS form).

[KMPINTJ]

Similar issue, but even with just one per form, it pops up a window asking for "Description" and "amount" even though the amount is already entered, and when I put it in this other box, it doubles the total. it WILL NOT allow me to just enter the number of the Royalty; a red "0" appears in the top line of Line 4 that keeps popping up this window, even though I have the "do not print supporting details" box checked.

My amount is correct, but it's not happy. Why is it going out of its way to make it difficult?

[Dobbs55]

I get the same error, but with my royalty 1099-MISC instead of rental 1099-MISC income on oil and gas rights only. 

Were you able to find a solution?

[PatriciaV]

We have tested this entry but are unable to reproduce the experience you have seen. It would be helpful to have a TurboTax ".tax2024" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, please follow these instructions: 

In TurboTax Online, open your return, go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools.
2. A window will pop up which says Tools Center.
3. On this screen, select Share my file with Agent.
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
5. You may wish to snap a screenshot to post instead of the actual number.
6. Reply to this thread with your Token number (including the dash) and tag (@) the Expert requesting the token from you.
7. Please include any States that are part of your return - this is VERY important.

If you are using TurboTax for Desktop, go to Online in the top menu, then choose "Send Tax File to Agent."

We will then be able to see the same experience you are having. If we are able to determine the cause, we'll reply here and provide you with a resolution. 

@KMPINTJ 

@Dobbs55