Eminent domain proceeds 1099 misc rents

[roates1230]

Eminent domain is taking a portion of our land but that includes our primary home, barn and shop. We received a 1099 s  (2020) for all of that, plus via a Purchase Use Agreement we received a 10% "bonus." The sale of house, etc came on a 1099 S and the bonus came on 1099 misc - rents. We protested the amount and will settle up with them in 2021 for an additional amount. How do I report the forced sale it since it's over a 2 year period, and how do I report the bonus (for easement) without having to pay tax on that amount?  And finally, when we sell the remaining property how do we reduce the gain?

[ColeenD3]

Please see this answer from PatriciaV:

Yes, compensation for eminent domain from Form 1099-S is reported as an Investment Sale. This is considered a sale because you have lost your ownership rights for the property.

To find this section of TurboTax, open your return and use the Search/Find box, type in "investment sale." Hit Enter, then click on "jump to investment sale." This will take you to the start of the investment sales section.

In order to record this properly, you have two choices:

1) You may allocate a portion of the adjusted basis in your property to the area taken by eminent domain. This could be acreage or square footage. This option will reduce a) the amount of capital gains on the sale and b) the basis of your property when it is sold in the future.

2) You may report zero cost-basis for the eminent domain property, which will make the entire proceeds from the sale subject to capital gains tax.

Under either option, the purchase date is the date you originally purchased the property.

For the easement on Form 1099-MISC, you can add it as other income and then back it out again with an explanation. "Incorrect 1099-MISC. nontaxable easement"

• Wages & Income
• I'll choose what I work on
• Less Common Income select Start (or Update) for 
• Miscellaneous Income.
• Other reportable income and you can enter your own description(s) and amount(s).

[roates1230]

So I'm forced to record the sale of my primary home as an investment sale?

[ToddL99]

No, in this particular case a forced sale of your principal residence will not be treated a the sale of an investment and it will qualify for the gain exclusion on a principal residence..

Report the initial sale the Sale of Main Home interview found under Less Common Income (see attached screenshot).

Enter the 2020 Form 1099-S sale proceeds in this interview. For the 2020 adjusted cost basis, use your actual adjusted cost basis LESS the additional amount you expect to receive in 2021. The calculated gain is eligible for the exclusion available for principal residences.

When you receive the 2021 payment, enter it in the Investment Interview (see @ Colleen D3 post above), but with a basis equal to the payment - this will result in no investment gain for this additional payment.

Since you still own the land subject to the "bonus" payment, that will be reported separately. Based on your original purchase price for the entire parcel and any cost basis claimed in the "Sale of Main Home" steps, you should have remaining basis in the parcel (includes easement). Allocate an appropriate portion of that remaining basis to the 1099-MISC income, to reduce tax on that payment.