1099-s Sale of Land Easement

First, you need to clarify something.

Did you sell a "right of access" easement? If so, that means you still own the land and you still pay property taxes on that land.  Or did you actually sell the land, meaning that you no longer own it, and therefore your property tax assessment is reduced accordingly?

 

Yes, it is "Right of access" ... I will still pay taxes and own the land. They are cutting down trees to allow easier access to their utility lines.

From what I'm reading, since this is a lifetime easement you'll treat it as a sale and report it as such on SCH D. Apparently, it doesn't matter that it doesn't reduce the amount of taxable land you own. But it does reduce your cost basis in the property overall, "as if" you outright sold the property. For the simplest and best write-up I can find that explains this, see https://www.bergankdv.com/resources/blog/proceeds-from-an-easement-or-right-of-way-2/

 

So basically, you have to figure that portion of land the money was paid for. Then figure what percentage of your original purchase price of the property applies to that portion of land the perpetual easement payment was for. That will be your cost basis. If the money you were paid exceeds that cost basis (I'm sure it will) then you have a taxable gain. You'll only pay tax on the gain.

 

You don't usually report payment for an easement, as income.  You  only reduce your cost basis in the remaining property, by the amount you received, for when the property is sold in the future.  But, if you got the 1099-S, it must be reported on your tax return, but it is most likely not taxable.

Report the 1099-S amount as sale proceeds, then show the same amount  as your basis, for a net gain of $0. On your own records, reduce your cost basis by that amount for future sale. 

TurboTax does not have an entry point for a 1099-S (other than home sale). So,  In TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
- “I’ll choose what I work on” Button
Scroll down to:
-Investment Income
   -Stocks, mutual funds, Bonds, Other (Real estate is other)

No, this doesn't appear to be correct. When you do this, there's a warning at the top that, once you select "Land (other investment purpose)", it says: "If this investment was used for business (rental, business expense, farm, etc.), don't report it here. Go to the Sale of Business Property section and report this investment there." Unless Turbo Tax internal is leading us astray. 

Edit: Looks like the question was for personal use whereas I'm looking for answers for rental, so the answer does actually answer the posed question, doesn't answer mine though, still looking. 

As posted, an easement lowers the basis in the property.  

 

Please go to your rental or farming section and select  

"Sale of Property/Depreciation" 

Select Yes, I want to go to my asset summary 

Click Edit next to the asset which includes the land (this would most likely be the building asset) 

Select Real Estate Property

Continue until you can edit the land cost and subtract the amount of the easement

 

If you received a 1099-MISC, you can enter that as Farm/Rental income, then subtract it out as an expense.

Mark it separate as a miscellaneous expense and title it "EASMENT REDUCED BASIS" so that it can be traced. 

If you received a 1099-S, you can enter it on your personal side, then "zero it out" but it might be temperamental. You can enter the AMOUNT as Farm/Rental income and expenses it out, but there is no way to actually enter the 1099-S as income on the farm/Rental screens. 

 

Keep the form with your tax file.

 

 

 

 

I had a similar situation where a utility company purchased a section of my property as a land easement/right of way to replace electric transmission lines.  I received a 1099-S and entered the amount from Box 2 into Turbo Tax online.  The problem is none of my tax documents/forms (pdf) reflect this amount.  What did Turbo Tax do with this information? I have already filed and received my 2021 tax refund.  Should I attempt to file an amended return? 

Q.  None of my tax documents/forms (pdf) reflect this amount. Should I attempt to file an amended return? 

A.  No. 1. Because easements are not usually taxable (see above). So, your amendment would not show any change and 2. if you entered it, it must have gone somewhere. If you entered it as described above, it should go on form 8949, then to Schedule D. 

i do not understand what i need to do.

what do i do?

It depends. Do you also have a Form 1099-S for the sale of a land easement?

 

You normally do not report the income for granting an easement. You only reduce your cost basis in the property by the proceeds received.

 

However, because you received a Form 1099-S, the IRS will be looking for it on your tax return. Report the gross proceeds. but enter your cost basis as the proceeds, so that your taxable gain is 0.

 

Enter the 1099-S proceeds as follows:

 

• Go to Federal Taxes
• Wages and Income
• Investment Income
• Stocks, Mutual Funds, Bonds, Other
• Click on either Start or Update
• Answer NO to Did you get a 1099-B or a brokerage statement for these sales?
• Choose 'Everything Else' as the type of investment you sold
• Enter the remaining details for the sale your property.

 

If you are using your land to operate a farm, you can instead report the payment as Other farm income at the screen Your Farming Income and Expense.

 

Then, report an offsetting expense to zero out the income.  Select Other miscellaneous expenses with a description such as 'right of way sold - basis adjustment'.

 

 

Where do i file this on my taxes ?

Just to clarify, what are you trying to file, a 1099S

There are several places to enter your 1099S depending on why you received it. Click HERE for details.

No matter how you enter this information, you wouldn't have to include the form itself with your filing. 

Thanks for the detail, I think I am following your instruction but want to make sure.

 

I did receive a 1099-S for a land easement, not a sale, just a permanent easement.  Per your instructions, I am not entering this as the 1099-S, I am going to Fed Taxes, Wages and Income, Investment Income, Stocks, Bonds, Mutual Funds, Other,  and selecting "other" as the "type of investment that I sold".  Under "how did you receive this investment?", I answered "I purchased it", for the "description" I entered "utility easement".  Under "when did you receive this investment" I entered the date I purchased my home.  Under "date sold or disposed" I listed the date of closing on the 1099-S. I entered the Proceeds from the 1099-S and finally and this is the part I really am not sure about, the last box says "cost or other basis" and under "learn more" I read it to be the cost of the home?  Is that correct?  

Follow up to previous reply.  I missed the instruction to enter the cost basis as the proceeds so that the gain/loss is $0.00.

 

Got it. 

 

I'm still a little freaked out that I'm not actually reporting the 1099-S that I received.  

1099-S is not a reportable document for IRS purposes thus does not require a specific entry in a return.