How to Report Gas Bonus Income on Schedule E

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Companies pay gas bonuses to the owners of mineral rights in exchange for rights to drill for oil or gas. They may call the payment a "lease bonus" or "advanced royalties." Taxpayers report gas bonus income as "rent" on line 3 of Form 1040's Schedule E. The Internal Revenue Service classifies the income as rent instead of royalties because the companies pay mineral owners even if their properties never produce oil or gas. The IRS requires every company that pays you gas bonus income to send you a Form 1099-MISC by February 1 of the following year.

Things You'll Need

  • IRS Schedule E (Form 1040)
  • Form 1099-MISC
  • IRS Form 1040
  • Fill in your name and Social Security number at the top of Schedule E (Form 1040).

  • List the type and location of the property for which you received gas bonus income on line 1, part A (for example, "Gas lease, Victoria County, Texas").

  • Find the total amount of the bonus payments for the year in box 1, 2 or 3 of the 1099-MISC sent to you by the payer. If you see the amount in box 7 (non-employee compensation), contact the issuer and ask for a corrected form.

  • Enter the amount of the bonus on line 3, column A.

  • Ignore the "Expenses" section unless you have any "ordinary and necessary expenses" directly related to the gas bonus. Generally, owners have no expenses directly attributable to the ownership of mineral rights.

  • Enter the amount of the bonus on line 21 and 22, column A, unless one of the loss limitations apply to you.

  • If you have more than one bonus, use columns B and C. If you have more than three properties to list, use additional copies of Schedule E to list the items and amounts, and fill in the "Totals" on line 23 on only one form.

  • Add the amounts from line 23, and enter the total on lines 24 and 26. Copy this number to line 17 of your Form 1040.

  • File Schedule E with your tax return.

References

  • Photo Credit jrwasserman/iStock/Getty Images
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