sch d question

[wendybooth]

Client recieved last year setlement and file sch d for state road right-a-way. This year in December recieved another 2500 for additional right-a-way. Agent told client is not taxable but I still believe taxable on sch d. Any help would be appreciated.

[jainen]

>>received another 2500 for additional right-a-way<<

If he deeded a strip of property to accommodate the right-of-way, he will use Schedule D to report gain or loss according to a pro-rated share of the basis. If he merely granted an easement, he will reduce the basis and not use Schedule D (unless basis reaches zero).

[wendybooth]

Client stated that deed was not amended from the one done last year. So I guess that is just an easement? Thanks for your quick response.

[RoyDaleOne]

Does the basis of the property have to be allocated on say a per acre?

Is the easement for just part of the property?

[wendybooth]

Easement is for part of the property for telephone line being installed when the road is widened. It is a perm easement.

[mcb39]

Client stated that deed was not amended from the one done last year. So I guess that is just an easement? Thanks for your quick response.

If it is an easement, it should be spelled out as such in the original offer to purchase under eminent domain. If it is an easement and no land is being exchanged for the second part; I think this is ordinary income with no basis and taxed as such.

[Don in Upstate NY]

The IRS says ...

Easements

The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. It reduces the basis of the affected part of the property. If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain.

From Pub 551

[RoyDaleOne]

EASEMENTS AND RIGHTS-OF-WAY. Income you receive for granting easements or

rights-of-way on your farm or ranch for flooding land, laying pipelines,

constructing electric or telephone lines, etc., may result in income, a

reduction in the basis of all or part of your farmland, or both.

EXAMPLE. You granted a right-of-way for a gas pipeline through your

property for $10,000. Only a specific part of your farmland was affected.

You reserved the right to continue farming the surface land after the pipe

was laid. Treat the payment for the right-of-way in one of the following

ways.

1. If the payment is less than the basis properly allocated to the

part of your land affected by the right-of-way, reduce the basis by

$10,000.

2. If the payment is equal to or more than the basis of the affected

part of your land, reduce the basis to zero and the rest, if any, is

gain from a sale. The gain is reported on Form 4797 and is treated as

section 1231 gain if you held the land for more than 1 year. See

chapter 9.

TIP: Easement contracts usually describe the affected land using

square feet. Your basis may be figured per acre. One acre equals

43,560 square feet.

IRS Farm same applies to any land.