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Easement lease question

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    #1

    Easement lease question

    A big utility company has offered my client a 50 year lease on a small portion of a property he owns so they can install a fiber optic switch. The company wants to pay him one payment for the entire amount ($$$$) of the lease up front. My question is: Can we amortize the payment over the 50 years of the lease? I've looked through Pub. 544 and other IRS sources and can't find anything that mentions such a scenario. I was going to call the local VITA experts but they're not open for business yet. ;^)

    Thanks and have a great tax season,
    "A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain
    Tags: easements, installment payments, leasing
    #2
    Copied verbatim from Regs. ยง1.61-8(b):
    Gross income includes advance rentals, which must be included in income for the year of receipt regardless of the period covered or the method of accounting employed by the taxpayer.
    Roland Slugg
    "I do what I can."

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      #3
      are we talking a huge sum of money? Is it possible for the company to set up a trust with the funds so that the TP gets an annual amount?
      I say refuse to sign unless the company agrees to make annual "rent/lease" payments.
      Believe nothing you have not personally researched and verified.

      Comment

        #4
        Not an authoritative source, but this says that a lease of over 30 years is considered a sale and receives capital gains rates. May be an avenue you want to explore further. http://www.schneiderdowns.com/tax-tr...to-land-owners

        Comment

          #5
          Originally posted by taxea View Post
          are we talking a huge sum of money? Is it possible for the company to set up a trust with the funds so that the TP gets an annual amount?
          I say refuse to sign unless the company agrees to make annual "rent/lease" payments.
          It's 6 figures so I think it is a huge sum. It equals about 2/3 of his basis in the entire property so I don't think we could adjust basis on the entire property since it is a very small slice of the land being used. He is a cash basis tax filer so it would be taxable in the year received, although the relevant IRS Pub. says "Generally ..." I was hoping there was case law or precedent for allocating the income over the life of the lease by the recipient.

          As capital gain it wouldn't be nearly as painful but still it's gonna hurt to pay.
          Last edited by taxmandan; 01-06-2016, 02:57 PM.
          "A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain

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