Q:

Subject: Lease Income

Kerry,

 If you had a mineral lease to receive payments as "rents", would you take payment as personal income and avoid the 15% SE tax, or structure a sole proprietorship/farm or LLC and receive it as income and take deductions? "Rents" are projected @ between 1K-6K/month for 8-12 years.

I realize that there are potentially more deductions than the 15% SE, however I'm near retirement and don't want to do a business full-time.

Also, to minimize liability, should I consider a family partnership/trust and sell or transfer the lease to it?

Thanks for any insight you may give.

A:

This is the kind of thing that you really need to be addressing with your own personal professional tax advisor.

I'm not sure where you got the impression that the mineral lease payments would be subject to SE tax because that is not normally the case.  SE tax would only be appropriate if you will be physically working to extract the minerals, such as with some gold miners I had as clients.  However, if you are merely the property owner and are being paid for the use of the property, that income would be reported as Rent and/or Royalties on Schedule E, which is not subject to SE tax.

Whether there is a need to set up a separate entity for this or anything else in which you are involved is a subject nobody can competently comment on without detailed discussion and analysis of your unique circumstances.

Good luck.  I hope this helps.

Kerry Kerstetter

Labels: Rentals

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 9/11/2007 12:00:00 PM Send this post: