1099s

[Ed Taxes]

Client received a 1099S from Electric company. There paid them for digging up their yard to put new utilities in. They claim it is not taxable but I an not sure! Any ideas?

[TaxprepP]

Client received a 1099S from Electric company. There paid them for digging up their yard to put new utilities in. They claim it is not taxable but I an not sure! Any ideas?

Who was paid? The electric company or the client? If there is an amount in box 2 on 1099-s (Proceeds From Real Estate Transactions) they will be required to include it in income. If amount paid to client not to be taxable should not have 1099.

[Ed Taxes]

Who was paid? The electric company or the client? If there is an amount in box 2 on 1099-s (Proceeds From Real Estate Transactions) they will be required to include it in income. If amount paid to client not to be taxable should not have 1099.

The 1099s shows 21,600 in gross proceeds box 2, to client. Client did receive the 21,600. He claims 9,814 was for easement and 11,786 for repairs.

[Jiggers]

Look at the contract. Easement goes on D (8949). Damages probably goes on 4684. You need some cost basis of the land and the damages.

[Roland Slugg]

It is common for utility companies (including sewer, water, etc) to pay land owners for the right to enter their property for the purpose of digging trenches and similar activities in connection with installing or maintaining their utility. Payments received in these circumstances simply reduce the basis in the property, but not below zero. If the payments exceed the basis, the excess is a capital gain.

In your post, however, you wrote that the client received form 1099-S. If that's true, then it's an entirely different matter. A 1099-S would be issued only if there was a sale of land or ... more likely in your client's case ... the sale/granting of an easement. If that's what the payment was for, then there was a sale, and an allocation of the basis should be made in determining the taxable gain.

[kamckinley]

The tax treatment depends on the type of easement. If it's a temporary easement (construction, utilities, etc.) it's taxable income and should be reported on line 21 Other Income. If it's a permanent easement (right of way or damages to your property) then the amount received is generally not taxable but it reduces your basis in the property. Since your client received a 1099S, you need to find out what type of easement it is (it could be part temporary, part permanent) and report it accordingly. Even if it's all nontaxable income (i.e., basis reduction), you might still want to report the amount received on Schedule D just to avoid a mis-match letter from the IRS.