For 2024 I received a 1099-MISC from the city for a temporary easement on a portion of my property for a road reconstruction project. The easement is on my primary residence and does not exceed the value of the property. The easement was paid and filed in 2024, but the actual project is planned to take place in 2025. The period of the easement is 1.9 years.
Only box 1, "Rents", was filled out on the 1099-MISC. When I enter the form into TurboTax, it shows as taxable income and results in an underpayment penalty for my taxes for the year. It also asks a number of questions about rental days, etc. that I don't know how to answer. Is this really taxable income? How do I report this?
I am using TurboTax Premium online.
Yes, you enter the rent would prorate the real estate taxes and enter the appropriate amount in the rental activity by selecting 'Add an expense or asset' and then scrolling to find Real Estate Taxes (see below).
Please excuse the miss for the damages portion of the payment. The damages portion of the payment should not be income because it is a replacement of property that already existed. It assumes you use the money to put the property back to it's original condition. Either way, your cost basis will remain the same as your original cost and this portion of the payment is not income to you.
Yes, it is taxable income. You can enter it as rental income with minor expenses. The real estate taxes could be prorated based on acreage used by the easement divided by total acreage of the property. Keep in mind this is a temporary easement as you indicated. Rents do not provide any special tax treatment so the tax would be whatever tax bracket your income falls into.
You could also choose to report it as Other Income, where no expenses would be allowed against it. The expense would be limited as indicated above so it's your choice. If you decide to keep Schedule E, you can ignore the Other Income instructions below.
If you decide to report it as Other Income, you would want to delete your Schedule E.
Other Miscellaneous Income:
Hi,
Thank you for the answer. I have some additional questions.
How/where do I enter this as income with minor expenses and prorate my real estate taxes? Would that reduce my tax burden?
I should maybe have mentioned this earlier, but despite the full amount being recorded as "Rents" on the 1099-MISC, when the payment was made, most of the money was earmarked for damages to landscaping, and only a small portion was earmarked for the actual temporary easement. Is a payment for landscaping damages really considered rent/income? Do I need to report the amount for damages and the amount for the easement separately somehow?
Yes, somewhat. It would be entered as rental income because that's essentially what it is, for a temporary period. Click the link below to get started.
That page tells me how to enter rental income and mentions expenses, but not how to do what you described: "The real estate taxes could be prorated based on acreage used by the easement divided by total acreage of the property."
Also, I didn't hear back on my second question: "Despite the full amount being recorded as "Rents" on the 1099-MISC, when the payment was made, most of the money was earmarked for damages to landscaping, and only a small portion was earmarked for the actual temporary easement. Is a payment for landscaping damages really considered rent/income? Do I need to report the amount for damages and the amount for the easement separately somehow?"
Yes, you enter the rent would prorate the real estate taxes and enter the appropriate amount in the rental activity by selecting 'Add an expense or asset' and then scrolling to find Real Estate Taxes (see below).
Please excuse the miss for the damages portion of the payment. The damages portion of the payment should not be income because it is a replacement of property that already existed. It assumes you use the money to put the property back to it's original condition. Either way, your cost basis will remain the same as your original cost and this portion of the payment is not income to you.