Tree Farm Growing concerns on my part

[erchess]

New client this year has always filed his farms on Schedules F but I am wondering if it should not be Farm Rental since his biggest income item on his NC farm comes from renting part of the land to a corporation that grows crops on the land and almost half of his total worldwide income comes from a gas well on his farm in Ark. Which form(s)?

He also gets Conservation Reserve Program Payments which he says he does not have to pay SE Tax on because he and his wife draw social security. Is he right?

[AJsTax]

From the Farmers Tax Guide:
"Conservation Reserve Program (CRP) payments. CRP payments are excluded from self-employment earnings for individuals receiving social security benefits for retirement or disability. See the Instructions for Schedule SE (Form 1040). "

The gas well income is sch E income, not sch F.

If he is not materially participating in operation of the farm the rent should be reported on Form 4835, then flows to Sch E.

If he receives program payments for growing crops then he has F income.

He may need to split it all up to get the income reported correctly.

[erchess]

Ty Aj

Let me be clear though - he is not operating the well. He is being paid for the right to put the well on his tree farm. Are we still talking Sch E?

[AJsTax]

Yes, Sch E

Let me be clear though - he is not operating the well. He is being paid for the right to put the well on his tree farm. Are we still talking Sch E?

If he was paid rent for the right to drill, that goes on the rent line on E, If he is receiving royalties for production from that well that goes on the royalty line on the E. The 1099 from the Oil/Gas company will tell you which it is.