Own land that is rented to an operating company that pays royalties for the oil they extract. Is this considered rental property or royalties?

[KrisD15]

Royalties. 

The income will be reported on Schedule E. 

[Carl]

Own land that is rented to an operating company that pays royalties

You have both rental income, which is what the company pays you for the land, and royalty income the company pays you for the oil they extract from that land.

The rental income is whatever amount they are contracted to pay you under a rental agreement for their use of the land. The rest is royalty income.

You will have two entires in the SCH E section of the program. One will be for the rent they pay for the land.If you do not also rent them any structures you own on that land, then nothing gets depreciated.

The other will be for the royalty they pay you. With the royalty payment you will get to claim depletion each year (as opposed to claiming depreciation for a physical structure you own and rent out.)

If the income is reported to you on a 1099-MISC with amounts in box 1 and box 2, then you will enter it "AS" "IF" you have two physically separate 1099-MISCs. One has income reported in box 1, and the other has income reported in box 2.