Please see this answer from PatriciaV:
Yes, compensation for eminent domain from Form 1099-S is reported as an Investment Sale. This is considered a sale because you have lost your ownership rights for the property.
To find this section of TurboTax, open your return and use the Search/Find box, type in "investment sale." Hit Enter, then click on "jump to investment sale." This will take you to the start of the investment sales section.
In order to record this properly, you have two choices:
1) You may allocate a portion of the adjusted basis in your property to the area taken by eminent domain. This could be acreage or square footage. This option will reduce a) the amount of capital gains on the sale and b) the basis of your property when it is sold in the future.
2) You may report zero cost-basis for the eminent domain property, which will make the entire proceeds from the sale subject to capital gains tax.
Under either option, the purchase date is the date you originally purchased the property.
For the easement on Form 1099-MISC, you can add it as other income and then back it out again with an explanation. "Incorrect 1099-MISC. nontaxable easement"
- Wages & Income
- I'll choose what I work on
- Less Common Income select Start (or Update) for
- Miscellaneous Income.
- Other reportable income and you can enter your own description(s) and amount(s).
