You can subtract the adjusted basis of the property to offset the income. Enter it as an investment sale. Use the amount of the 1099 as the proceeds and then the adjusted basis of the property.
If you receive money as compensation for your lost property and you don't use that money to buy replacement property, then the involuntary conversion will generally be treated as a sale. Subtract your adjusted basis from the compensation you receive. The difference can be a taxable capital gain.
The amount received for granting an easement is subtracted from the basis of the property. If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received.
Any amount received that is more than the basis to be reduced is a taxable gain. The transaction is reported as a sale of property.
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