Oil Royalties

[gygolf]

Every time I want to include Oil Royalty income it assumes that we own the property.  We only own the Mineral Rights but it keeps coming back and makes the assumption we own the land.

[DaveF1006 · Accepted solution]

Regardless, it will ask you the property information where these mineral rights are located. You would need to fill out this section even though you do not own the land. What is important in this is;

1. As you go through the rental and royalty property information and put an address where the rights are located.  Doesn't really need to be too detailed.
2. make sure on that screen where you report the location, select this is Royalty income
3. Then as you progress through the screens, there will be a question that asks What type of Royalty income is this you will indicate that this is mineral property
4. Then the next screen will ask you what the income is. This may be already populated if you have already entered a 1099 MISC.
5. Then it will ask you for a depletion amount if you have that information.
6. You're finished at this point.

[Bakerman]

I have the same issue. It thinks I have my own business. Usually have a bunch of corrections at the end for the schedule c. I looks like the royalty goes in twice. Once as a business and again as a royalty.

[GeorgeM777]

If you have just a royalty, and the royalty is not connected to a business, then your return should reflect that your income includes whatever royalty payment you have received.  You should not have a Schedule C.  Here are the steps to delete your Schedule C if you do not need this form.

1. Open or continue your return in TurboTax.
2. In the left menu, select Tax Tools and then Tools.
3. In the pop-up window Tool Center, choose Delete a form.
4. Select Delete next to the form/schedule/worksheet in the list and follow the instructions.

Regarding your royalty payment, when entering this information you should have seen a screen such as the one pictured here (which is from our test return), or a similar screen.  From this page you would enter your information and respond to the questions when prompted until the end of the section.  

@Bakerman

[Norm28]

As I understand your response, this works for property you own.  In our case we are getting a small royalty for mineral rights my wife's family have owned for generations.  The total royalty we receive is less than $500 per year.  I don't think we need to file a Schedule C.  We did receive a 1099-Misc from the company from who we get the royals funds.  How should I proceed?  Thanks

[JulieS]

You do not need to file Schedule C, Royalties are reported on Schedule E.

Here is how to report a royalty in TurboTax:

1. Select Federal from the left side menu.
2. Select Wages and Income toward the top left.
3. Scroll down/ expand the list and look for Rentals and Royalties.
4. Expand that section and find Rental Properties and Royalties (Sch E).
5. Click Start on the right.
6. Answer the first question Yes.
7. Select Royalties on the right, click Continue.
8. Fill the screen with the information from your 1099-MISC and  click Continue.
9. Answer the next few questions.

[rwilhelm65]

My wife owns mineral rights for which she is paid when oil is extracted.  That is the extent of her business activity.  

After filling out Schedule E I am asked to fill out Schedule C for a Qualified Business.  I don't think this is a QB and when I fill it out it seems to double our income.  

What am I doing wrong?

[DianeW777]

You are correct.  Do not complete Schedule C if you wife is not involved in the operations of extraction. This should be reported only on Schedule E. 

She would not qualify for the qualified business income deduction (QBID) since she is only receiving royalties and no operations.

• IRS QBID Summary

[HCB1]

I have followed the Turbo Tax prompts and your advice.  I completed the property description, address, property info, etc. for an oil/gas royalty property and 3 rental properties.  After all data is imputed for the tax return, I examined the tax return and find:

Schedule E, Part 1, Line A and Line 1a for the royalty property (on page 2) are BLANK.  Those lines are completed properly for the 3 rental properties (on page 1). This has concurred for the last four years and chances are it  will eventually prompt an audit.  Why won't Turbo Tax treat royalty properties like rental properties.  It is not providing the info requested by the IRS?

[HCB1]

I have followed the Turbo Tax prompts and your advice.  I completed the property description, address, property info, etc. for an oil/gas royalty property and 3 rental properties.  After all data is imputed for the tax return, I examined the tax return and find:

Schedule E, Part 1, Line A and Line 1a for the royalty property (on page 2) are BLANK.  Those lines are completed properly for the 3 rental properties (on page 1). This has concurred for the last four years and chances are it  will eventually prompt an audit.  Why won't Turbo Tax treat royalty properties like rental properties.  It is not providing the info requested by the IRS?

[DoninGA]

@HCB1 You should have two separate Schedule E's.  One for the Royalty Property and one for the 3 Rental Properties.  Is this what you have?

[HCB1]

YES

[DoninGA]

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@HCB1 wrote:

YES

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Page 2 of the Schedule E would only be completed if you had Income/Loss reported on a Schedule K-1 (Part II), Estates or Trusts (Part III) or REMIC's (Part IV).

Did you have Income/Loss from these types of entities?  If not, page 2 of the Schedule E will not be completed.

[HCB1]

Yes.  I have three pages for Schedule E.  The 3 rental properties are on page one and the royalty property with blank address and description lines is on a second page. I also have a K-1 which is entered in Schedule E, Part II, on a page 3, where all Schedule E profits and losses are combined to a final net number in Part V, Summary.   That summary net total  is then transferred to 1040, Schedule 1, Part 1, Line 5.

[HCB1]

I have to sign off for the evening.  I'm looking forward to learning why the oil/gas royalty property description and address is not on my final Schedule E, Part A and 1a, after I entered it and verified it with the Turbo Tax questionnaire, etc.  The info does show on the Turbo Tax Worksheets for the property.  Thank you for the help figuring this out.