The state bought half your property, in what sounds like eminent domain. Eminent domain takings and easements are handled the same. It does not matter what you did with the money.
You do not normally report the sale or any gain or loss. You simply reduce the cost basis in the remaining property by what you received. For example if you originally paid $100,000 for you home and the state took half the land and paid you $25,000; your new cost basis is $75,000. When you sell the home, in the future, your capital gain (profit) will be based on the new $75,000 basis (cost). For example if it sells for $200,000, your capital gain will be $125,000 (200K -75K=125K).
But, the IRS expects that 1099-S to show up on your tax return. So, you report it in a way that shows 0 capital gain. That is, you enter the 1099-S amount as both your sales amount and your cost basis. See this previous answer for details on how to do that: https://ttlc.intuit.com/community/taxes/discussion/you-normally-do-not-report-the-income-for-grantin...
There are some alternate ways to do it, but most people choose the above. For alternates see:
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/i-received-a-1099-s-f...
