Client is paid Royalties to allow a gas driller to drill on his land. IS this considered to be a Qualified Business for the 20% deduction?

[nmr12354]

Client received royalties from a gas driller on his property. Is this considered to be  qualified business income? 

[IRonMaN · Accepted solution]

Unless he is out there helping them drill, it doesn't sound like a business.  I'm guessing his time involvement is pretty much cashing the checks when they come?

[PhoebeRoberts]

That's not dispositive, but the conclusion is right.

[PhoebeRoberts]

If your guy owns the surface rights, any payment he got for allowing the drilling to proceeds isn't royalties (and isn't QBI).

If your guy owns the mineral rights, the payment's not related to where the wellbore is; a well drilled on someone else's land that tapped the reservoir running under his land would still be paying him based on production.

Royalties are statutorily portfolio, and aren't eligible for QBI. Don't forget to take depletion.