1099-misc box 3 for pipeline easement

[gtbyrd]

Received 1099-misc with box 2 "royalties" and box 3 "other income".  Box 2, no problem.  However, Box 3 was for a Pipeline Easement. This should be a capital gain. The gain is much greater than my basis.  How do I move 1099-misc box 3 "other income" to schedule D so it will be taxed at the long-term gain rate.  

[DianeW777]

First let's determine if the easement income is taxable.  Next, if you decide it is taxable, this might be a 'right of way' payment. If so then you should follow the steps below with details. 

• Grants or sales of limited easements are usually not treated as taxable sales of property. Instead, amounts received are subtracted from the cost basis/purchase price of the property. Any amounts received in excess of the cost basis are treated as taxable gain.
• IRS Publication 544

If you no longer own the portion of land where you were granted an easement payment:

To enter your sale in TurboTax, follow these steps. 

1. Open or continue your return.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
   • TurboTax Desktop: Search for investment sales and then select the Jump to link.
     • Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other
3. Answer Yes to the question Did you sell any of these investments in 2024? 
   • If you land on  the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.
   • Click this link for more information. Where do I enter Investment Sales?

[gtbyrd]

Received 1099-misc box 3 for sale of permanent pipeline easement.  As per IRS publication 554: since the amount received is more than the basis, it is a capital gain to be reported as a sale of the that specific part of the property.  The IRS monitors 1099-misc box 3 and therefore it must be reported.  Unfortunately, Turbo Tax forces 1099-misc entries into ordinary income.

I need the actual "Turbo Tax" procedure to acknowledge the 1099-misc box 3, but have it report as a schedule D capital gain.  

[DianeW777]

Yes, you can and should enter your easement payment as a sale. The instructions below will allow you to enter the information in your return as a sale of investment property, which will place it on Schedule D for capital gain treatment. The instructions below are placed here for your convenience and are duplicated previously. 

First delete your Form 1099-MISC from your return using the link for your TurboTax version. 

• If you're using TurboTax Online software and need to delete a form, click here.
• If you're using TurboTax Desktop software and need to delete a form, click here.

Now use these steps to enter your capital gain sale.

1. Open or continue your return.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
   • TurboTax Desktop: Search for investment sales and then select the Jump to link.
     • Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (important to select this)
3. Answer Yes to the question Did you sell any of these investments in 2024? 
   • If you land on  the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.
   • Select how you acquired the land, the date of purchase and the date of sale.
   • Click this link for more information. Where do I enter Investment Sales?