When claiming Oil & Gas Lease bonus can you deduct expenses such as Mortgage interest and property taxes? I have it currently listed as ""Rent" on Schedule E?

[MarilynG1]

Yes, you can claim Royalty Expenses like Mortgage Interest  and Property Tax on Schedule E.

Click this link for detailed info and instructions for entering your Royalty Expenses. 

[Ohio1]

@MarilynG1 Thank you for the response.

To confirm interest and taxes are deductible from the lease sign on bonus payment? I did not get Royalty payment that tax year only bonus check payment.

[MarilynG1]

Yes, that is correct.  You may want to designate it as 'bonus' in the description. 

[CarlaK9]

Is there somewhere I can find the approved deductions for oil and gas lease royalties? Thank you!

[PatriciaV]

@CarlaK9

Generally, with oil & gas royalty properties, you may have the following expenses:

• Property taxes on the mineral rights only
• Production taxes (usually on your 1099-MISC)
• Depletion (TurboTax calculates this for you)

Royalties are reported on Schedule E. To easily find this area of TurboTax, use the Search box at the top right corner of the TurboTax header and enter "royalties". Click on the "jump to royalties" link to be taken directly to this area of the program.

Follow the interview process to enter your Royalty Property, along with income reported on Form 1099-MISC and any property taxes you paid. Note that if your 1099-MISC includes "other deductions" (example: production taxes), enter these under "More Expenses" in the extended interview.

Unless you have a working interest in the mineral property, you cannot deduct other expenses like mortgage interest or property taxes on the land.

[CarlaK9]

Thank you so much.  I just want to clarify since this string seems to say two different things. 

For property taxes and mortgage interest, if just receiving "mailbox money", I cannot deduct them, correct?  

[PatriciaV]

Yes, a royalty bonus requires no work on your part, and the expenses you mentioned would not be deductions against the royalty income.

[bartonomus]

I am confused because as soon as I enter my royalty payments form the 1099-MISC it gives me depreciation and asks for Mortgage Interest paid on all 1098s for this property. This is my only residence.

What am I missing? I have been doing it like this for years.

[PatriciaV]

@bartonomus
Yes, if you receive royalties from mineral rights, that income is reported on Schedule E. To confirm the property is set up correctly, go to Rental and Royalty Properties, select the property in question and review the information under Property Profile. Be sure it's marked Royalty and not Rental. 

Only rental properties are eligible for mortgage interest and depreciation You may report any related expenses from the Property Summary page. TurboTax will calculate percentage depletion based on your royalty income.

Note: The original question was about a lease bonus, not royalties.