Severance Damages Gas Pipeline

[peanut]

Enbridge Energy Partners is building a gas pipeline from Canada to Chicago. Client received 1099 for other income of $ 4000 for the pipeline going thru his 80 acres. This should reduce the basis of the 80 ac and if excess capital gain. Everyone agree? Has anyone had experience with pipelines construction thru property and the payments received?
Thanks

[veritas]

From TTB

Examples—not taxable:
• Class action and other settlements for consumer goods or services
if amounts were not deducted in an earlier year.
• Property damage if the amount received does not exceed basis.

[Jiggers]

Depends

See IRS Pub 225, page 17.

Easements and rights-of-way.

May result in income, a reduction in basis, or both.

If less than the basis of the property, reduce the basis. Easement contracts usually describe the effected land using square fee. Your basis may be figured per acre. One acre equals 43,560 square feet.

If the payment is equal to or more than the basis, reduce basis to zero and the rest is a gain from a sale.

It specifically says that if the construction of the line damaged growing crops and you later received a settlement for this damage, the income goes on Schedule F.

You really need to look at the contract for the terminology used. Easement or damages. If damages, you need to know if it was for crops or road damage or grazing land...... All would be income on Schedule F.