Gas & Oil Lease Royalty Payments Tax Liability.

So you’ve decided to lease your mineral rights.  You’ve attended a few of the educational seminars.  You’ve spoken with your attorney and you’ve finally chosen the company you’re comfortable with to  sign a  lease with.   Great!!  Your signing bonus and royalty checks may be substantial.

How does the IRS treat this type of income? The Lease Bonus Payment, which can be received in one payment OR installments is considered to be ordinary income.  The IRS considers it the same as rental income and you’ll need to use Schedule E to report this particular type of income.

Royalties are payments for share of production.  They are treated as ordinary income.   Neither leasing bonus or royalties are subject to any self employment tax. However they are usually subject to percentage depletion.  You’ll report the royalties on Schedule E also.

How can you possibly reduce your tax liability for you newly acquired income?  There are deductions you can claim that can help.  For example, you may deduct the attorney payments that were associated with your lease negotiation.  There is much to consider when leasing your property.   Please consult with your financial and legal advisers to make sure you’re getting the best possible advice.
Contact me for more information on buying or selling property in Northeastern Ohio, or for information on leasing your mineral rights.

Email, text or call-

Jackie Stewart- Miller Realty



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