land easement and damages

[spt]

Land easement for utility purposes can be a taxable transaction but is additional damages a person receive taxable? Have a client that gave me a breakdown of acreage for the easement value and additional damages from a pipeline that goes thru the middle of his property. The pipeline company furnished him with this and stated that the damages were non taxable. Calculation sheet showed price per acre that totaled permanent easement (for taxable amount) and then temporary easement, damage (with cost per acre) for the non taxable amount.

[jimmcg]

Land easement for utility purposes can be a taxable transaction but is additional damages a person receive taxable? Have a client that gave me a breakdown of acreage for the easement value and additional damages from a pipeline that goes thru the middle of his property. The pipeline company furnished him with this and stated that the damages were non taxable. Calculation sheet showed price per acre that totaled permanent easement (for taxable amount) and then temporary easement, damage (with cost per acre) for the non taxable amount.

In order to determine the taxability nature of damage payments one would need to know specifically what the damage payments were intended to cover. For example replacement for crop damage, etc.............Must be a written agreement somewhere; what does it specifically say?

[spt]

damages were for

rotation crops, vegetable, other - that is in writing on the calculation sheet
total damage acres says for perm.esmt + all temp workspace

[Jiggers]

Damages

rotation crops, vegetable, other - that is in writing on the calculation sheet
total damage acres says for perm.esmt + all temp workspace

Is the taxpayer reporting income/expenses on Schedule F?

If so, the damages are taxable.

Easement is a capital gain item, if it is a true easement. You have to calculate the acreage that is given up in the easement. Then you have to calculate the cost basis of the same acreage. The net gain of the two is taxable. If the easement is less than the cost basis, you reduce your basis by this amount.

[jimmcg]

Argee with Jiggers. Damages to replace lost crop revenue (if that is what it is) would certainly be taxable.