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).
Example
You granted a permanent right-of-way for a gas pipeline through your property for $10,000. Only a specific part of your farmland was affected. You reserved the right to continue farming the surface land after the pipe was laid. Treat the payment for the right-of-way in one of the following ways.
- If the payment is less than the basis properly allocated to the part of your land affected by the right-of-way, reduce the basis by $10,000.
- If the payment is equal to or more than the basis of the affected part of your land, reduce the basis to zero and the rest, if any, is gain from a sale. The gain is reported on Form 4797 and is treated as section 1231 gain if you held the land for more than 1 year. See chapter 9.
IRS Publication 225
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