Qualified Business Income Deduction

[taxpayertx]

Are oil and gas royalties received (reported on 1099-Misc, entered on Schedule E) considered qualified business income for the qualified business income deduction?

[PaulaM]

Most likely not, according to the link below. 'Mineral royalties held for investment are not likely to qualify for the 20 percent deduction; however, working interest income appears to be eligible'.

Oil & Gas Royalties QBI eligible?

[jimparmenter]

When you say working interest, what does that mean. I have mineral royalties I receive each month from producing Natural Gas wells that a company runs and I don't consider them being held for investment. Does that mean they qualify for QBI. I own the mineral rights to the land and have leased the mineral rights to this company in return they give me royalties on the production of Natural Gas they produce and sell. 

[DMarkM1 · Accepted solution]

It appears you have a royalty interest which is not QBI.  You have actually relinquished the working interest to the company that is producing the natural gas. Here is the applicable extract from the link in the earlier response.  

"Rights to receive lease benefits include the right to receive bonus payments, delay rentals, and royalty payments. Rights to develop include the right to develop and right to produce the minerals. When the mineral estate owner grants a lease, the right to develop is relinquished and then vests with the lessee operator. This distinction is critical in classification of royalty interest (right to receive lease benefits) versus working or operating interest (right to develop the lease)."

So, if you are an owner in the company that is mining/producing the natural gas, then you would have a working interest.  

[jimparmenter]

Thanks

[MJJ57]

TTB is assigning QBI to two out of eight of my oil & gas royalties even though I said No they are not.  Cant fix it in Schedule E where it asks for a link.

[DavidS127]

More information could help diagnose your issue:

1. Are you using TurboTax Business (partnership, corp, or trust return) or TurboTax Home and Business (individual tax return)?
2. What is the source of the royalties you received, i.e., Form 1099-MISC or Schedule K-1?

@MJJ57

[BJoTTrust]

I am using Turbo Tax Business and the source of the royalties is from 1099-MISC.

[ColeenD3]

@ BJoTTrust

Are you getting the QBI deduction as well for royalties?

[Tpixs]

I have TT Premier and have the same issue.  The program creates form 8995 even though I mark my royalties as not eligible for QBI. 

[MarilynG1]

Go to the Schedule E Worksheet and scroll down to the 'Qualified Business Income Deduction Smart Worksheet'.

Check the Box on Line A1 for 'No'.

If there's a business linked below on Line A2, you could also click the arrow and 'Remove Link.'

Click this link for more info on the Qualified Business Income. 

[Tpixs]

Done 

No change - still prints form 8995

[KrisD15]

Just to clarify,

Is the QBI is being calculated on the royalty income or something else, such as dividends or K-1? 

@Tpixs

[BigPapi]

I have the same question.  For each 1099-Misc that I plug in, the Interview states:

"In general, if rental or royalty activity is based in the U.S. and carried on with regularity, continuity, and a profit motive, then income from this activity is considered Qualified Business Income (QBI)."

[Tpixs]

Good question!  Yes it was something else.

Thanks for the quick replies.