Oil and gas lease bonus issues when entered into turbo tax

[WVTink]

Oil and Gas Lease Bonus

I entered my 1099-MISC in turbo tax under other common income then it was expanded on in the Royalties section of TurboTax.  It is listed on the1099 in Box 1 as Rents and that is how I entered it int both places.

This is the response I get when getting ready to file or run smart check:

Schedule E Worksheet (Property Address) Line 3--1099 misc -- Income from rental real estate and income from royalties must be reported as separate properties on schedule E.

I don't have any royalties just a lease bonus. When asked after I typed everything in it made me put a "0" in for Royalties.  My schedule E print out shows where it should be, but it won't let me file.

[DaveF1006]

Even though your 1099-MISC says Box 1 - Rents (which is correct for an oil and gas lease bonus), confusion occurs if you try to report it as a standard real estate rental while also having any connection to the Royalties section.

The error "Line 3- 1099-misc -- income must be reported as separate properties" occurs because TurboTax thinks you are trying to combine a Rental property and a Royalty property on the same worksheet, which the IRS doesn't allow. Here is how to fix the issue.

1. Delete the 1099-MISC: Go to Federal > Wages & Income > Other Common Income > 1099-MISC and delete the entry entirely. 
2. Delete the Schedule E Worksheet: This is the most important part.
3. In Desktop: Go to Forms Mode (top right), find the Sch E Wks for this property in the left sidebar, and click Delete Form at the bottom. Do this for all Schedule E and Schedule E worksheets
4. In Online: Go to Tax Tools > Tools > Delete a form and remove any Schedule E and worksheets associated with this lease.
5. Close or log out of your program and open or log back in again so the changes are made.

Now re-eneter the 1099 MISC in the following manner. 

1. Instead of starting with the 1099-MISC section, go to Wages & Income > Rentals, Royalties, and Farm > Rental Properties and Royalties (Sch E).
2. Add a new property. When it asks "Is this a Rental or Royalty?", select Royalty.
3. Select Oil and Gas as the type.
4. When it asks for your income, enter the 1099-MISC info there.

Even if your 1099 lists "Rent," the IRS treats a lease bonus for mineral rights as a royalty for Schedule E. Reporting it as a Royalty property avoids the extra "Real Estate" questions, like address or days rented, that can cause a Line 3 error.