Received easement payment from pipeline company and subsequently a 1099-MISC with Box 1 listed as 'Rents'. Do I need to report on Schedule E? How do I report days rented?

[Hillnot]

This was a one-time payment for a partial easement. Not sure if I have to list on Schedule E and how to explain rented versus personal use of land.

[DavidD66]

Payments for utility easement sales are not considered income.  Instead, the payment lowers your basis in the property.  It does create a capital gain if the payment exceeds the basis in your land.  You wouldn't have to report the payment on your tax return, except for the fact that you received Form 1099-MISC, and the IRS is expecting that amount to be reported. For more information on property easements, see:   IRS Publication 544 

Since you received Form 1099-MISC you will have to report the "Rental Income".  When you enter the Form 1099-MISC, it will trigger TurboTax to create a Schedule E.  Report (as Other Expenses) the same about as the rental income reported on the 1099.  Give it a description of "Reduction in basis for easement".  The 1099-MISC will be reported on your tax return, so it will match with the IRS records.  Leave days rented blank.

[LoxRiver]

Hello,

I really appreciate your expertise in this article but have additional questions. I received a 1099-MISC form in 2020 with box-1 "Rents" checked. The payment was from our local electric utility company for an underground easement (in perpetuity); alongside our primary residence. We have owned this residence for 20+ years. The easement payment is less than the price we originally paid for our vacant lot / land (before building our home). 

After I entered the 1099-MISC Rent payment amount, I selected "Rent or Royalty 1099-MISC Income" for the Schedule E; then TurboTax asks me to answer lots of questions about how I acquired the property, if it was a primary residence, etc. I just answered "none of the above" and entered "REDUCTION IN BASIS FOR EASEMENT" as you recommended under OTHER EXPENSES. That cancels out the amount of the 1099-MISC (and the tax affect). But I am not sure if needed to enter any other details such as what I originally paid for the property, etc? And what will happen next year for this Schedule-E. Do I delete it or ignore it for now?

I will be thrilled if this payment from our utility company does not generate a taxable event for the misc. income! Any additional details on how to proceed would be much appreciated! Thank you 🙂