1099-Misc for Mineral Rights box 1 rents

[nwtaxlady]

Client received a 1099-Misc in Box 1 Rents of $25,700. Client said it is Mineral Rights, the right to drill. So does this go on SCH E as Rent income. Also do they get any kind of depletion? Anything else I need to know.

[JG EA]

Client received a 1099-Misc in Box 1 Rents of $25,700. Client said it is Mineral Rights, the right to drill. So does this go on SCH E as Rent income. Also do they get any kind of depletion? Anything else I need to know.

There are several discussions on mineral rights. Try that in search. Since there are different situations discussed there you may find the one that fits you. Here is one that might fit:

http://www.thetaxbook.com/forums/showthread.php?t=17707&highlight=mineral+rights

[AJsTax]

Rents

I have been doing a bunch of these this year, including my own.
the up front money from the oil company is known as a lease bonus and is shown in Box 1 on the 1099. the IRS code is very specific on this. Report on Sch E as rent. No production has been done so there is no depletion. If and when they receive royalties then depletion will apply.
So to sum:
report on Sch E as rent.
do not take depletion.
do pay taxes as passive income (that is the part that hurts!!!)

[nwtaxlady]

thanks ...

That's what I was thinking and makes sense to me. Good to hear from others that have these on a regular basis. I am on the West Coast so not so popular here.

Thanks again to both of you for your input!!