Hi All. I'm looking for input on the best way to report a property easement that was part temporary and part permanent.
My client received a 1099S for $41,775. Of this amount, $39,000 is for a permanent right of way easement (per research and other threads on forum, this is not taxable but reduces the basis in the property). The remainder $2,775 is a temporary easement, which is taxable income.
I had originally planned on putting the $2,775 on line 21 and using Sch D for the $39,000. However, I'm wondering if Form 4797 would be more appropriate than Sch D. Also, do I really need to use line 21 Other Income? I'm thinking I may be able to accomplish both goals using Form 4797.
So for example, report $41,775 as gross proceeds on line 20 of Form 4797 and $39,000 as the cost basis. This produces a gain of $2,775, which is the amount of the temporary easement. I think this would be easier and would be more likely to prevent a CP letter from the IRS since the client received a 1099S (splitting the amounts between Sch D and line 21 might have caused some confusion).
Also, since the temporary easement is subject to ordinary tax rates instead of LTCG, use the date of the easement for both date acquired and date sold.
What do you think. Am I on the right track?
Thank you so much for any help you can provide!
Kristine
My client received a 1099S for $41,775. Of this amount, $39,000 is for a permanent right of way easement (per research and other threads on forum, this is not taxable but reduces the basis in the property). The remainder $2,775 is a temporary easement, which is taxable income.
I had originally planned on putting the $2,775 on line 21 and using Sch D for the $39,000. However, I'm wondering if Form 4797 would be more appropriate than Sch D. Also, do I really need to use line 21 Other Income? I'm thinking I may be able to accomplish both goals using Form 4797.
So for example, report $41,775 as gross proceeds on line 20 of Form 4797 and $39,000 as the cost basis. This produces a gain of $2,775, which is the amount of the temporary easement. I think this would be easier and would be more likely to prevent a CP letter from the IRS since the client received a 1099S (splitting the amounts between Sch D and line 21 might have caused some confusion).
Also, since the temporary easement is subject to ordinary tax rates instead of LTCG, use the date of the easement for both date acquired and date sold.
What do you think. Am I on the right track?
Thank you so much for any help you can provide!
Kristine