1099 MISC has both rent and royalties reported

[dnoguchi]

I received a 1099 MISC with both rent and royalties reported.  I entered the 1099 information as reported, and I keep getting errors for rent and royalties need to be reported separately.  I did enter them separately, but Turbo Tax threw them together onto the same Schedule E.  Also, the oil and gas lease is for the rights under our home, so don't know how to enter the rent portion.  Error check says I need to have number of days use for rental probperty.

[KrisD15]

Is the rent for under your home an easement? 

[dnoguchi]

Yes.  The lease agreement says " To this end, Lessor hereby grants to Lessee a subsurface easement for all purposes associated with such directional/horizontal wells."

[dnoguchi]

Should I enter the royalties as my address and the rental as my address - easement in order to separate the Schedule Es?

[KrisD15]

If it is an easement, you don't claim it as income, rather you subtract it from your basis. 

For example,

(Disregarding Homeowner capital gain exclusion, so just to illustrate a point)

If you purchase a home for 200,000 and sell for 250,000 you would have a 50,000 gain. (250,000 - 200,000 = 50,000)

If you are paid 1,000 a year for 10 years and then sell, you would subtract that 10,000 from your basis. Now your cost for the property is only 190,000

Now you would have a 60,000 gain (250,000 - (200,000 - 10,000) = 60,000)

How have you been reporting the rent on past year returns? 

You can just "ignore" the rent reported on the 1099-MISC, but the IRS might inquire about it. 

I suggest you enter it, and then subtract it out with an explanation for the IRS to follow. 

You will have to enter the 1099-MISC like two forms, one for the royalties. 

Enter it a second time under "Other Common Income" 

You will need to enter the amount as if it were reported in Box 3 or the program will show an error. 

You will need to select No to like your work, No to intent to make money and No to any other year except the year you are filing for. 

(These are TurboTax questions NOT IRS questions, so this is not anything you could get into trouble for, you're just trying to get the 1099-MISC to show so the IRS can match it)

The amount will be on Schedule 1 as other income.

Next, subtract it out. 

Go back to the Wages & Income section

Scroll down to the VERY LAST option "Less Common Income" and click Show more

On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START

Now scroll down to the VERY LAST option "Other reportable income" and click Start

Select YES on the "Any Other Taxable Income?" screen

Type "Easement on 1099-MISC " and the amount  but as a NEGATIVE (put - in front of the number)

This NEGATIVE amount will negate that rent amount. 

Keep good records and be sure to keep this in mind when you sell. It may or may not matter at that time. 

[dnoguchi]

This is the first year that we have received rent/royalties, so I am hoping that the rent part was just a one time signing bonus for signing the lease agreement.  But if it is on-going, I will be prepared on how to handle it in future.  Thank you so much!