Thanks, Robert.
Yes, this approach certainly would save money.
I’m wondering what authority you found saying the IRS would allow a payment for a “temporary construction easement” to be excluded from ordinary rental income — assuming there’s no permanent loss — considering, for example, the “easements and rights-of-way” section on page 17 of IRS Publication 225 (2018) that Victoria also summarized?
That section includes the following:
“Income you received for granting a temporary construction easement is rental income. Report the income as rent on Part I of Schedule E (Form 1040).”
Similarly, what authority would one use to exclude the portion of the payment that covers “anticipated future damages“ — considering the examples in IRS Publication 225 (also in Publication 527, if temporary easements are taxed like rental properties)?
So far, unfortunately, the official information I’ve read seems to require reporting all of this as Schedule E rental income, except for the interest. Maybe I’ve overlooked something addressing temporary construction easements. If so, kindly let me know the citation(s).
