What is royalty income from a patent considered?

[rlieberman7]

My wife has a small royalty from the university for a joint patent in research. You have two choices on your form, property or business, where does it go.

[TerryA · Accepted solution]

I would call that "property" instead of "business" because "business" will create a Schedule C and cause self-employment tax. "Property" royalty income will go to Schedule E with no self-employment tax.

[mthardy]

This is true. Because the university controls the patent, you put the income on Sched E. If you owned the full patent rights, you would have to pay self-employment taxes and file as a business on Sched C.