Oil Lease Income

[JaninMi]

I received a call from a local farmer, who leased his 900 acres of farm land. This was a oil lease for 5 years. He has

received the check. He is a long time active crop and general farmer. His question to me was could he report the

income on his Sch F?

I told him it should be reported on Sch E, rent income. But now I'm wondering if it could be reported on Sch F, I

know it would be subject to self imployment taxes, but his expenses and depreciation could reduce the income

some what.

Any advise would be appreciated. Thank you.

[Ray in Ohio]

I would say it has to go on Schedule E.

[rfassett]

Line 21 - other income. Definitely not Schedule F.

[Edward]

The initial payment the farmer receives is called a LEASE BONUS which must be reported on Sch E . (Source, pages 8-3 and 8-4, QF 'Individuals - Special Tax Situations".

[JaninMi]

Thank you for your feed back.

I would also report it on Sch E. That was my initial response to him, but then I got to over thinking it. I just was trying to save this guy some money, as the lease was for a very large amount.

Thanks again!