With natural gas powered cars and 51 percent of homes heating with natural gas in the United States, gas leases create new revenue sources for mineral owners. The IRS expects a share of your income, submitted with your Form 1040 at tax time. Accurate information provided on proper forms, along with payment of any taxes due, will meet IRS expectations. You can complete these easy forms yourself.
Sometime after the new year, you should receive a Form 1099-MISC from the leasing company that handles your gas lease. The Form 1099-MISC covers amounts in excess of $10. Yearly totals less than $10 do not require reporting. Information contained on the form is for the prior tax year in preparation for filing your tax return by April 15.
You need Schedule E for Form 1040 to complete your federal income tax return for any year in which you receive income from a gas lease. This form is called “Supplemental Income and Loss,” covering royalty income and expenses. Use Line 4 to report royalties from a gas lease, and use the columns for different properties, if you have more than one. Enter the gross income figure.
Claim any expenses you have in maintaining the lease or property. Use Line 6 through Line 19. Claim auto expenses on Line 6. You may be able to claim mortgage interest on the property as well. Long distance telephone calls may be expenses. Beware of capitalization rules if you claim repairs and improvements to the property. Repairs do not require capitalization; improvements do. Legal fees for preparation of Schedule E on your taxes are deductible, but capitalize legal fees for defending or protecting the title to the property.
Add the expenses from lines 5 through 19, enter on line 20 and calculate your income or loss. Include utilities and insurance on the property if you have legitimate expenses. The total on Line 26 of Schedule E should be the correct figure for Line 17 of your Form 1040. This figure affects your adjusted gross income on your Form 1040. You may use the same Schedule E to claim partnership and S corporation income and income from estates and trusts. You may need to file more than one Schedule E if you have royalty income from other sources like books or Internet revenue sharing.
Do not fail to declare your rents and royalties income from a gas lease unless the amount is under $10. The IRS receives the same information you receive from the leasing company. Do not put the figure in Line 17 without completion of Schedule E, as your tax return will be incomplete. Remember to include loss figures in parentheses or they will be read as profit.
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