How to enter 1099-S for a one-time easement payment from a power company on farmland that is owned in fee simple with my brother and our dad (who has a life estate)?

[law56]

I received a one-time permanent utility easement and takings settlement payment from a utility company for their construction of power lines across farmland owned and occupied by my father as a life estate, with my brother and I as the fee simple owners of the land.  My brother and I do not live on the farmland and I live in a different state from the land; however, we each received a portion of the settlement payment (negotiated prior to an eminent domain court procedure).  I received a 2023 1099-S for Proceeds for the Sale of Real Estate.  How do I enter this into Turbo Tax?  Or, is this even possible in Turbo Tax?  As the life estate owner, my father has been dealing with all the taxes related to this farmland, so I don't know the proportional value of the land impacted by the utility lines/permanent easement to make a determination of the proportional cost basis reduction and remaining taxable income if this were my own property.  

[SharonD007]

TurboTax will guide you through the interview to enter your 1099-S for the easement payment.

Refer to the article Where do I enter the sale of a second home, an inherited home, or land on my 2023 taxes? for instructions.

The sale will appear on Form 8949 and Schedule D of your federal taxes.  For more information, review the TurboTax articles Guide to Schedule D: Capital Gains and Losses and Where is Form 8949?

[Opus 17]

I would not worry about the proportional value.  Instead, I would consider that you sold a strip of land for exactly the cost basis, you have no taxable gain, and your cost basis for the future is reduced.

For example, suppose your father's cost basis was $100,000, and he "sold" (was taken) a strip of land for $10,000 that was divided 3 ways.  Each recipient would report that the cost basis of the strip of land was $3,333 and the proceeds were $3,330, for no taxable gain.  The cost basis of the land is reduced by the $10,000 you claimed as cost basis for the strip, so the new cost basis is $90,000.  That will possibly result in a larger gain later, if your father sells before he passes, but paying tax later is better than paying it now.  Especially since you and your brother will inherit with a fully stepped up basis, it is to your advantage to reduce the basis rather than paying tax now. 

(As an alternative suppose the proportional cost basis of the taken land was $3000.  You would each report a $1000 basis, $3333 of proceeds, and $2333 of capital gains, and the basis of the land would be reduced to $97,000.  That would result in more tax now but less tax if your father sells in the future.  But if he passes and you inherit a fully stepped up basis, then you paid tax now but you don't get a future tax reduction because of the basis.)