1099-misc from NC department of transportation

[dallasjh89]

Hello! Last year we were compensated in the amount of $9500.00 from NC DOT because a traffic circle is being put in near our property. I received a 1099-misc for $25 in the “rents” box and received a 1099-S with $9475.00 in the “gross proceeds “ box. I’ve put in the 1099-misc and my refund goes down like $225. Is there a way around this? I wish the DOT would have sent it as “other income” instead of rents. Can I put it in but do some kind of reversal to offset it? Really don’t want to lose $225 over $25. 
thanks for your help!

[TomK2023 · Accepted solution]

The program probably sees "Rents" in Box 1 of the 1099-MISC and assumes you are running a rental business (this can trigger self-employment taxes).

The 1099-S ($9,475) is for the permanent part of the deal (the land they took for the circle... treated as a "sale" of property). You report this on Schedule D (Capital Gains).

The 1099-MISC ($25) is likely for a Temporary Construction Easement (TCE). The NC DOT "rented" a small slice of your yard for a few months (e.g., to park a bulldozer or move dirt).  Per IRS rules, temporary easements are technically rental income.

Instead of entering the 1099-MISC under the "Rental Property" section, enter it as Miscellaneous Income so it doesn't trigger Schedule E or self-employment.

1. Open or continue your return.
2. Under Federal tab, Click on Wages & Income.
3. Scroll down to Less Common Income, and Select Miscellaneous Income, 1099-A, 1099-C.
4. Choose Other reportable income.
5. Enter "NC DOT Temporary Easement" (for the description), and $25 (for the amount).

The Offset: If you want to zero it out (because the payment actually reduces your property's "basis" rather than being pure profit), add a second entry "Basis adjustment for easement" (for the description) and enter "-$25" (in that same section). This nets the income to $0.

If you have already entered the 1099-MISC and the program is asking you business questions (e.g., "What is your business name?"), delete that 1099-MISC entry entirely. Then, re-enter it under "Other Reportable Income" (above)

Note: Make sure you enter the 1099-S in the "Sale of Main Home" or "Investment Sales" section.  If this was your main  residence, you can usually offset that entire $9,475 with your home's original cost basis, resulting in $0 tax for that portion.

[dallasjh89]

Thanks so much, this was a huge help!

If I do the offset for the $9,475 amount, would I do it the same way as the $25 rental by putting -$9,475? Thanks!

[DianeW777]

No, you do not offset the $9,475 by the same amount. This is the price paid for the land they will keep and are using for the circle. The cost basis for this will be a portion of the price you originally paid for the land. 

• How to arrive at the price of the land sold:
  1. Use the tax assessment you had before the land was sold and ask the county or city for a new tax assessment after the sale.
  2. Take the original assessment land portion divided by total assessment (land and building) to determine the percentage of your cost that was for the land at the time of purchase of the property and multiply by the original purchase price.
  3. Take the new assessment land portion and divide it by the total new assessment (land and building) to determine the percentage of the new assessment that is for land only and multiply by the original purchase price.
  4. Take the result in 2. above and subtract the result in 3. above. This result is the cost of the land you sold to NC DOT. This will be used as the cost basis to offset your sales price. Keep in mind that if there were any sales expenses that will also factor in to reduce gain.

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 2025? 
   • 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?

@dallasjh89