Final sale of interests in surface, oil, gas, and minerals in 2021

[ksj10506]

I received a 1099 MISC for 2021 with box 3 (the total sales amount) from a Land Acquisition Company that I sold all my interests that I owned in surface, oil, gas, and minerals that I inherited from my dad in 2017.   The Sale was reported on a W-9. I want to know if the 1099 MISC is the form that I should have received or should I have received a 1099 B or 1099 S instead.  I want to be able to show the cost basis: what the interests were worth when I inherited them, so I only pay the difference between the sale price minus the cost basis instead of capital gains on the total amount.

[DianeW777]

The sale proceeds could be reduced if at the time of inheritance you had a cost basis in the property.  Many times with mineral, oil or gas there is no cost to the owner, but if you had a valuation done after the death of the original owner you can check your documents to see if you have an inherited value of this asset.

If so, then that value can be used as a cost basis to offset the proceeds. If there was no value for these assets after death, and this land was already under contract with the companies who are extracting the oil, gas and/or minerals you may be able to go back to the company to receive the value on that date of death.

If you have no basis, then your cost will be zero and the sales proceeds will be taxed at the capital gains tax rates since inherited property is always considered held long term.

The sale of inherited property can be entered using the following instructions.  

1. Open or continue your return (you can choose the Search box and type 'sale of second home' then use the Jump to link to enter your inherited sale) or follow the menu.
2. Under Wages & Income scroll to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
3. Answer Yes on the Did you sell any stocks, mutual funds, bonds, or other investments in 2021? screen
   • If you land on the Your investment sales summary screen, select Add More Sales
4. On the OK, let's start with one investment type screen, select Other, then Continue
5. On the Tell us more about this sale screen, enter the name of the person or institution that brokered the sale
6. On the next screen, select  Other (choose this also for inherited homes) then select I inherited it under How did you receive this investment?

[ksj10506]

Thank you so much.  So filing this under "Other"  is the place to put it even though I got a 1099 MISC with box 3 filled in with the proceed amount?  I did not receive a 1099 B or 1099 S.

[JulieS · Accepted solution]

Yes, that is correct box 3 of 1099-MISC is labeled "Other income" and should be entered as such.

[ksj10506]

I am still confused as to where to enter my information in Turbo Tax.  If I enter it under investments under other, which shows a 1099 S (I received a 1099 MISC with the Sales total in Box 3), there is nowhere to input the date that I inherited the interests and it keeps showing that it needs to be reviewed.  If I input it under Sale of Business Property, there is a place to put the date acquired, date sold, purchase price, and the cost basis.  Seems like I should be entering the amount there.

What do you think?

[GeorgeM777]

@ksj10506   Because it appears that you inherited, and later sold, oil, gas, and mineral interests, (hereinafter referred to as "property") this response will address how to enter your sales proceeds.  If you inherited something else, such as a rental property, a home, or investments (i.e., stocks, bonds, mutual funds, etc.), post additional information explaining the nature of your inheritance.  As a reminder, whenever posting additional information, do not include personal identifiable information. 

You mentioned that you received a 1099-Misc with an amount in Box 3, Other Income.   Because it appears that the amount you received represents the sale proceeds from the sale of inherited property, you need to determine your basis, or cost, for the property that was sold.  Unfortunately, your 1099-Misc does not tell you what your basis is.  If it did, you would be able to determine whether you have a capital gain or capital loss.   Thus, determining the basis for the property sold is important.  

Because you inherited this property, the basis of inherited property is generally determined as of the date of death of the decedent.  If there is an Executor/Administrator for the estate of the decedent, you can ask that person whether they have a value for the property you inherited.  The Executor/Administrator generally will value the assets of the estate as of the date of death of the decedent; however, the Executor/Administrator does have the option to use a different date (referred to as an alternate valuation date) if such different date is better for the estate/beneficiaries.  But that is something you need to verify with the Executor.   

When you have your basis, then enter your basis information and sales proceeds in the Investment Income section of TurboTax.  Select the category Stocks, Mutual Funds, Bonds, because it appears you sold a capital asset, and answer the questions accordingly.  You will see a page where you will be able to enter your basis, sales proceeds, date of sale, etc.  Continue to the end of the section.  

[ksj10506]

As it turns out, I am the executor of my father’s estate, so I do have the cost basis for my property interests on the day my father died.  I tried entering all the info I had in the other part of Stocks, Bonds, Mutual Funds, etc.under other.  I can fill in everything: that’s it’s inherited, the cost basis, the date sold, and the sale proceed amount…but there is nowhere to put down the date that I acquired the interests that I sold in 2021.  When I finished completing that section, it keeps saying “Needs Review.”  So frustrating. 

[ksj10506]

As it turns out, I am the executor for my father’s estate and I do have the cost basis for the interests when he died.  I tried entering all the info I had in the other part of Stocks, Bonds, Mutual Funds, etc. under "Other."  I can fill in everything: that’s it’s inherited, the cost basis, the date sold, and the sale proceed amount…but there is nowhere to input the date that I acquired the interests that I sold in 2021.  I need to be able to do this to establish the date for the cost basis as well as proof that the sale is a long term gain.  When I finished completing that section, Turbo Tax keeps saying “Needs Review.”  So frustrating. Any ideas as how to finish this section so it doesn't keep saying, “Needs Review.”

[DianeW777]

The date acquired is not necessary for the sale of inherited property.  The reason is inherited property is ALWAYS considered long term so the acquired date is not important.  I do see the 'Needs review' on my end after I click on the Federal Review (at the top).  Once I handle the necessary fields that are highlighted my sale is good.

Make sure you do the Federal Review to be sure there is any necessary changes you need to make.

I'm going to suggest you take a minute to clear any cache and cookies.  Your computer remembers pieces of data that you want it to forget. It's a good idea to do this often.

• How to clear your cache

Please update here if you need further assistance.

[ksj10506]

I have inputted all the information under "Other" in the Turbo Tax Program under Stocks, Mutual Funds, Bonds, , but it still says needs review.  Do I also need to input the amount of the sale under 1099 MISC income also.  Seems like that would have me paying on the same amount twice.  Just trying to get this one thing right, so the "Needs Review" will go off, has been so frustrating.

[ErnieS0]

Do not enter the 1099-MISC in the 1099-MISC second, otherwise TurboTax will add the Box 3 amount to income without any basis. You'll end up paying twice ono the same sale.

The IRS probably won't sent you any notice. Box 3 for a 1099-MISC can go in a lot of places and they should see the amount reported on Schedule D.

As for Needs Review, try filing. I was getting Needs Review and it went through Federal Review fine.