@LeonardS wrote:
Generally, you do not report payments for an easement. You will reduce your cost basis of your property, by the amount you received. The cost basis of the property is used to calculate any gain or loss when the property is sold.
Did you get a 1099-MISC form for the payment? There are two ways to respond if you did.
1. Add the 1099-MISC as "other income". Make sure to answer the test questions "no" (not for profit, not a job, etc.) Then, go to "other uncommon income" and add a new item of income with a description like "basis offset for easement payment" and a negative income number equal to the number on the 1099. This will put the 1099 in the tax return (so the IRS might not send an automatic letter that it is missing) while zeroing out the actual income.
2. Or, leave the 1099 off your return. File by mail, don't e-file. Attach a copy of the 1099 and a letter explaining what the payment was for and why it is not taxable.
Neither method is guaranteed to avoid questions from the IRS. I have seen them question negative adjustments on e-filed returns, but they are also known to lose attached documents.
