oil and gas:1099 Misc with both box 1 (sign on bonus) and box 2 values (royalties)

[jwrtp]

In the Wages and Income Section, Rental Properties and Royalties (Sch E), there is an option to add a rental or a royalty. I have both rental (signing bonus) and royalty payments and TurboTax does not allow me to add both box 1 and box 2 values reported in the 1099 MISC as a single royalty option. So, I "split" the single 1099 MISC into two separate entrees in TurboTax - one royalty and one rental. There is state withholding reported in box 15 for both the bonus and the ongoing royalties, so I split that between them, too. The royalty entity has box 2 plus the box 15 amounts for the royalties, and the rental entity has box 1 plus box 15 amounts for the bonus (not really a rental). I see that TurboTax creates depreciation for the royalty entity. I also included the legal fees for the signing bonus with the rental/signing bonus entity. It doesn't feel right splitting up the 1099 MISC like this, but I couldn't figure out a better solution. Is there an alternative, supported way to handle this in TurboTax?

[PatriciaV · Accepted solution]

As long as you report all taxable income from Form 1099-MISC, you can use whatever income section(s) apply.

Most mineral bonuses are one-time income and are not related to a Rental Property. For this reason, you may enter this Form 1099-MISC under:

1. Federal Taxes
2. Wages & Income
3. Other Common Income
4. Income from Form 1099-MISC

When asked, check that this income was NOT related to a main job. Likewise, check that you received it only this year. Check that it didn't involve an intent to earn money.

This entry will result in your description and the amount in Box 3 appearing on Form 1040 Line 8 "Other Income." No depreciation will be calculated and no Schedule E will be created.

Although gas royalty properties are entered with Rental Properties, be sure you check the box for ROYALTY when you set up the property and enter only Box 2 from Form 1099-MISC. You can still report expenses like property taxes and production taxes. But other areas that don't apply to Royalty properties aren't needed. Also, TurboTax will automatically calculate depletion for you.

[jwrtp]

Thank you, Patricia. Your instructions are clear and helpful. I did as you suggested and separated the single 1099 MISC form that I received with both box 1 and box 2 amounts into two forms in TurboTax. One is for royalties (box 2), and the second reports the one-time bonus listed in my box 1 as box 3 in the Turbo Tax form. I partitioned the state taxes withheld between the two forms as previously mentioned.

One potential problem with this approach is that I no longer see the prompt to report and deduct legal fees that I previously used when I treated the box 1 format as a rental. There was a significant legal fee applied to the signing bonus. How can I record that?

[PatriciaV · Accepted solution]

You may enter these legal fees under Deductions & Credits >> Other Deductions and Credits >> Legal Fees.

Note that you can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Eligible legal fees are reported as a miscellaneous expense on Schedule A, but your total deductions need to be more than 2% of your AGI (adjusted gross income). Fortunately, you don't need to worry about figuring out these numbers. TurboTax automatically calculates this for you and will determine if you qualify for this deduction.

[Debbie52655]

The oil company with not take out any kind of taxes on the 1099 MiSS

[Debbie52655]

already listed as royalties