By Chris Zoller, Chris Bruynis & David Marrison, OSU Extension Educators & Peggy Hall, Extension Specialist, Agricultural Law
The leasing of land for oil and gas drilling throughout eastern Ohio has provided landowners with substantial revenue. OSU Extension has received many calls from landowners asking how they can avoid paying taxes on these payments. The quick answer is that there are very few ways to avoid paying taxes on lease bonus payments or royalty income. Oil and gas revenue payments are classified as Miscellaneous Income and are subject to both federal income and Ohio taxes (and should be reported appropriately).
Taxation on Lease Bonus Payments: Cash payments received by the landowner prior to drilling, commonly referred to as lease bonus payments (typically paid on a per acre basis) are considered ordinary income for tax reporting purposes and are subject to ordinary income taxes. These payments might be made on an annual basis each year of the lease’s primary term, or could be made as a lump-sum payment that combines all annual payments into one payment made upon executing the lease. … Continue reading