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Lease Bonus Tax

776 Views | 1 Replies | Last: 7 yr ago by libertyag
Alpine
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AG
Can someone please tell me how much tax one has to pay on a oil lease bonus. Google gives varying opinions but may be talking about numerous other things at the same time. Thanks.
gigemhilo
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AG
They are more or less taxed the same way as royalties. You put them on Schedule E. They are considered ordinary income but not subject to self-employment tax. IN OTHER WORDS, it will be the same tax rate as your income tax bracket.

You can deduct some expenses against the income, including property taxes associated with the mineral rights and cost depletion.
libertyag
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AG
Watch the 1099 that you get from the payer. Be sure that they do not report it in box 7 or the IRS will be looking for self-employment tax on the payment, which you do not owe.

They should report it in box 1, as rents. Some report it in box 3 but if they report it in box 1 it is easier to report it, and the related expenses, on Schedule E.

If they do report it in box 7, contact the payer and ask that they correct the 1099.
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