Easement

[liberty]

A client inhereated a 600 acres of land in 1994 from his parents. In 2018 telephone company put a tower on his land and paid him 17000 for easement of 10 acres of his land and issued him a 1099s for 17000. He had no idea how much the basis of that 10 acres of land. Taxbook page 6-10 easements-stated that if it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced. What would you do with 17000 payment? Do you just ask him to reduce the basis of his land basis and leave 17000 out of his tax return? or put 17000 as capital gain on his tax return? He is an old man, and had no idea the basis of his land?

[spanel]

Leaving it off is not an option.

My suggestion is to find a good appraiser. They should be able to get you a cost basis per acre for 1994.

Chris

[spanel]

Also, He did not really sell anything, just gave an easement. The cost would be $0 plus any reduction in value to the 10 acres.

Chris

[Burke]

He had no idea how much the basis of that 10 acres of land. Taxbook page 6-10 easements-stated that if it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced. What would you do with 17000 payment? Do you just ask him to reduce the basis of his land basis and leave 17000 out of his tax return? or put 17000 as capital gain on his tax return? He is an old man, and had no idea the basis of his land?

Basis is not that hard to determine. As you state, 10 acres out of 600 are affected, or 6%. County records would show its value in 1994 for tax purposes when it was inherited. It may also be on probate records if there was a will. He has been paying real estate tax on this property all these years, which show its valuation. You pro-rate the value on a per acreage basis at the 1994 value, IF this is a permanent easement which is considered a sale (capital gain.) If it is specifically a temporary thing, such as 20 years, then the easement is treated as rent. You need to see the easement documents. You say he got a 1099. What box was the payment shown in?

[Jiggers]

Also, He did not really sell anything, just gave an easement. The cost would be $0 plus any reduction in value to the 10 acres.

Chris

Giving an easement is the same as selling the land. Or did they lease the land for 100 years for a payment of $17,000 up front? Big difference. Asked by Burke above, what box is the amount in? And is it a 1099MISC or 1099S?

[Burke]

Giving an easement is the same as selling the land. Or did they lease the land for 100 years for a payment of $17,000 up front? Big difference. Asked by Burke above, what box is the amount in? And is it a 1099MISC or 1099S?

An easement can be temporary. After re-reading OP, it appears he got a 1099-S which I did not pick up on originally (OP used little "s" and I think I assumed it was more than one). This indicates it was a sale of the property. I would still want to see the easement documents to verify it is correct. TP should have them. See post above about determining basis. MUST report on 1040. Leaving it off not an option.