How Is Income Tax Filed For My Mineral Rights Signing Bonus?
July 3, 2017
Leasing or selling mineral rights are a great way to earn income from the mineral rights you own. Whether you lease or sell mineral rights, any money received is considered as earned income and must be reported to the IRS on a yearly basis.
If you decide to lease your rights as opposed to selling them, you will usually be granted a cash bonus at the time of the lease agreement. This is in advance of any royalties that you may collect over the length of the lease. The bonus must also be reported to the IRS as income for that tax year.
Filing Part 1 - 1099-MISC Income Statements
When you lease your mineral rights, you may receive a signing bonus when the lease is signed which is in addition to the royalties you may receive if resources are extracted. It is also different from the money you would get from selling mineral rights. Bonuses may be paid to you in a lump sum at the time of the agreement or in multi-year payments until the agreed sum has been paid in full.
The lessee will send you a 1099-MISC statement at the end of the tax year which shows the amount of any bonus paid to you that year as "rent." The 1099-MISC Form should only show bonus payments and not include any royalties. If for some reason it does include royalties, contact the issuing company and request that a corrected 1099-MISC be issued to reflect only the amount of bonus paid that year.
Organize your 1099-MISC Form with all payment stubs from bonus payments so that you can prepare to file this information on Schedule E of your income tax return.
Filing Part 2 - Schedule E Tax Form
Once you have collected your bonus payment stubs and 1099-MISC Forms, you must include this information on your IRS Schedule E - Supplemental Income and Loss Form. The process for filing bonus income is almost the same as if you sell mineral rights, except that your income is categorized differently.
Fill out the form and include the name and information of the company that paid the bonus. Include the amount listed on the 1099-MISC under Schedule E - Part 1 Income - Section 3 - Rents Received because Schedule E does not have a specific line item for bonus income.
Do not list your bonus income as royalties or any other type of income earned from selling mineral rights. If you have more than one 1099-MISC from multiple companies, include them all as required, total your bonus income. Document any expenses incurred that are related to the bonus income and total on Line 20. Subtract those expenses and enter as either Line 24 - Income or Line 25 - Losses. Combine those two lines and enter the result in Line 26 - Total Income or (loss). Then transfer this amount to Form 1040 - Line 17 where it will be part of your standard income report.
If you own mineral rights, leasing or selling them is a great way to earn additional income. Whether you sell mineral rights or lease them to a third party, you are required to list any money received as additional income on your yearly tax return.
Bonus income acquired through the lease of mineral rights must also be listed, along with any royalties received. Listing your bonus income is easy to do with the 1099-MISC you receive and Schedule E Form that you complete. This will ensure the earnings from the lease of your resources are properly reported to the IRS!
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