Received 1099-NEC from City for easement and other items. How to handle in Turbo Tax?

[1978j]

I received a 1099-NEC in the amount of $22,800.00 from City for road project (addition of sidewalks) in front of my property.  The breakdown of the payment is below.  The 1099-NEC only has box 1 with the $22,800.00 amount. 

Permanent Easement                                                    $9,040

Replacement Cost Brick Mailboxes (2)                        $12,500

Driveway Replacement Cost                                          $1,260

Did the City report this on the correct form?  Is any of this income? How to handle in Turbo Tax?

[BillM223]

I question why they sent you a 1099-NEC, as if you were a contractor working for city, as opposed to a 1099-MISC, which would be just a miscellaneous payment.

Did they actually pay you $22,800? I can understand the payment for the easement but what was the "Replacement Cost Brick Mailboxes (2)"? Did they have to take out your mailbox so they were reimbursing you for that?

You want to call them and ask them why they sent you a 1099-NEC instead of a 1099-MISC.

[1978j]

Yes, I received $22,800 from the City.  Yes, the mailboxes will have to be taken out, so the City is reimbursing me for them. 

[AmyC]

The NEC is illogical. You can ask for them to issue a corrected NEC of $0 and then issue a MISC. They may not be willing to do it.

If you can't make any progress with them - you will need to make 3 separate entries.

1. Enter the 1099-NEC. Follow these steps:

1. Open your return to the federal income section.
2. Locate income from Form 1099-NEC
3. Start/ Edit/ Revisit/ Review
4. Select Yes to did you receive NEC
5. Select add a 1099 -NEC or edit
6. Enter payer, id, and compensation
7. Continue
8. Reason for NEC - easement and reimbursement
9. Continue
10. Uncommon Situation - select not money as employee or self-employed. Sporadic activity
11. Continue
12. Done

2. Next, you need to subtract the income back out:

Follow these steps to enter the income:

1. go to the federal income section
2. scroll to the bottom
3. Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description  - whatever you want to say- NEC wrongly issued
9. Amount, enter your amount as a negative.

3. Correctly enter the easement sale

Enter the land sale of $9,040. See Where do I enter the sale of a second home, an inherited home, or land on my  taxes?

[1978j]

Thanks Amy.  I appreciate your very helpful and detailed response.  

I have one more question regarding the land.  I still own the land.  There is no change in ownership.  So, is the permanent easement still treated as a land sale?

[AmyC]

You still own the land! Thank you for that extra bit. Yes, it is not a sale of property. It is simply income. When you are subtracting out the income, don't subtract the easement payment out, that will leave taxable income for the easement.

[1978j]

The permanent easement is a "right of access" easement. Since it is a permanent easement, is it income?

I am getting conflicting information regarding tax treatment of permanent easements.  Another post on this site indicated that a permanent easement with no actual sale of land is treated as a sale and should be reported on Form 1099-S.  Typically, this type of easement payment is not income, but will reduce the cost basis of the property. There could be a capital gain if the payment received exceeds the cost basis. 

[AmyC]

We had a little group chat and found a ruling by the IRS. Permanent easements are a sale of the property. Remember, it may not be taxable once you subtract out your basis. It should have been a 1099-S. 

Go back to my first answer above and follow those steps.