OIL & GAS ROYALTIES AND RENTAL PROPERTY

[MARYFERREL]

Good Morning,  I have oil & gas royalties on my rental property.  I keep getting errors stating that the property shouldn't be rented.    how should I handle this?  

[DianeW777]

You need to do two entries for your rental property.  The oil & gas royalties need to be added as a separate property even though it's the same property.  Since rental and royalty income is handled differently for tax purposes, this will allow you to complete your return.

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

[Carl]

You need to do two entries for your rental property.

To further clarify, you will have two entrires in the SCH E section. One for your rental property, and a completely separate one for the royalty income.

Take a look at lines 3-22 on a blank SCH E at https://www.irs.gov/pub/irs-pdf/f1040se.pdf

When you are done, Column A would be the rental income/expenses only for the rental property. The amount of rent received would be on line 3 Column A. The amount of rent received will be in box 1 of a 1099-MISC if you received a 1099-MISC.

Column B would be for the royalty income/depletion. The amount of royalty income would be on line 4 under Column B. The amount of royalty income received will be in box 2 of a 1099-MISC if you received a 1099-MISC.

So if you received one 1099-MISC with an amount in box 1 and box 2, you would enter it "as if" you received two physically separate 1099-MISC forms. One with the rent in box 1, and the other with the royalty payment in box 2.