We received a 1099-misc other income from the county for tree's that are going to be removed with the reconstruction of the county road in front of our home. The tree's are either going to be in the new right away or need to be removed during construction. Is there anything we can use to offset the income? We do not make money from the sale, removal or moving of tree's. This is a one time payment. The tree's will not be replaced or if replaced not for a year or two.
Yes, report the 1099-misc and then a negative adjustment. Payments for easements are not taxed, but the basis in your property must be reduce by that amount.
Sign into your account and return. Click the “Pick up where I left off” bar
Click on Federal on the left side-bar, then Wages & Income along the top.
When you get to the Income section, (you may need to click "Show All Income" first) Scroll down to Other Common Income and Click Show more
Click Start or Revisit for Form 1099-MISC
Enter a description for the non-work income, such as “Easement Payment” for the reason and Continue
Click “None of these apply.” at the bottom of the list for “Does one of these uncommon situations apply? And Continue
Answer “No, it didn’t involve work like my main job.” on the next screen and Continue.
Click the year you got the reward and Continue (if you received this income for more than 2 years, the IRS will consider it as self-employment)
Answer “No, it didn’t involve an intent to earn money.” on the next screen and continue.
Do you have another 1099-MISC? Click No and Continue
Click Done.
The income will show as a line item on line 21 of Schedule 1 of the 1040 and not as Self-employment.
Next, make the adjustment for the reduction in value (basis)
Click on Federal,,,Wages & Income,,,,scroll down to the last section "Less Common Income"
Scroll down to the last choice "Miscellaneous Income, 1099-A 1099-C" and Start
Scroll down to the last choice "Other reportable income" and Start
For the Description enter "Reduction in basis for easement"
Enter the amount of the easement payment AS A NEGATIVE NUMBER
(remember that you are also reducing the basis in your property by this amount.)
Click Continue and Done
The 1099-MISC and your adjustment will show on Schedule 1 line 21 and flow to the 1040.
Can I deduct the amount even though it wasn't for the land? I got a separate 1099-S for the land. This is just for the tree's in the way.
Yes, in that situation, enter the 1099-misc as "Payment for Tree damage" and the adjustment for "Tree damage"
Actually you can enter the 1099-S and also enter the same as the basis for that sale so that there is no capital gain. Keep the form with your tax file and be aware that the basis in the remaining land is now reduced for this amount on the 1099-S.
Is this still the correct approach for a payment from utility for tree removal and damage?
Yes, if you received a payment from the utility company and then a Form 1099-MISC for tree removal and damage. A 1099-MISC, with an amount in Box 3, Other income, goes to Line 8 of Schedule 1, as other income. It will be taxed as ordinary income, not a long term capital gain.
If it is in a different box or on a different form, please let us know the details.
To enter:
For clarity, I am tax planning for next year. I just received the “compensation” from the utility. No indication if a 1099 will follow next year. They have not asked for my SS.
Assuming I must claim it as income, can I offset that amount by reducing the property cost basis so that no taxes are owed? The money was compensation for tree removal and damage to trees so that the utility can install new power lines. No power lines existed along the property before. The removal of dozens of mature trees (including several in the front yard of the home) will have a negative impact on my property value. The earlier portion of this thread suggests that this should not result in a taxes owed and goes through the steps.
Yes
As stated above, this income is similar to an easement.
Yes, you are getting income today, but it is not taxable because you lost or "sold" part of your property to get the income.
If you enter the 1099 payment, so that the IRS can track that 1099, you would also enter the "adjustment" so it is not taxed and the IRS gets an explanation to why you are not claiming that income.
In your situation you are giving up trees and having lines run along the frontage of your property.
The payment reflects how much the power company feels their disruption has affected your property, so you simply reduce your basis.
EXAMPLE:
You buy the property for 200,000.
Sell for 300,000
You have a 100,000 gain (income)
You buy the property for 200,000
Utility Company pays you 5,000 for tree damage
Now you reduce your basis by that 5,000 to 195,000.
You sell for 295,000 since the missing trees brought your value down.
Now you have a 100,000 gain. The same as before.
You buy the property for 200,000
Utility Company pays you 5,000 for tree damage
Now you reduce your basis by that 5,000 to 195,000.
You sell for 300,000 because the Buyer doesn't care about the missing trees.
Now you have a 105,000 gain. The same as before, but an additional 5,000 because you received 5,000 previously from the utility Co.
Where do you document a 1099-S? There are places for 1099MISC, etc, but no where covers a 1099-S. This is for a utilities easement.
You sold land - in a nutshell, it goes on sch D. The 1099-S simply means real property was involved.
See Where do I enter the sale of a second home, an inherited home, or land on my 2023 taxes? and select online or desktop for your directions.
I see no place on a Schedule D that I can enter info from a 1099-S. The form asks for information from a 1099-B but not from from 1099-S.
Where in Turbotax does a person input info from a 1099-S?
You don't actually enter a 1099-S anywhere. You report the sale of property, which ends up reported on Schedule D.
Go to Investment Income in the Wages & Income section and choose Stocks, Crypto, Mutual Funds, Bonds, Other.
Choose Investment Type 'Other'. This is not taxable, you are just reporting because you received the 1099-S.
Report the amount of the Sales Proceeds and your Cost Basis as the same amounts (therefore, no taxable income).
You do reduce your Cost Basis in the land if you sell it later; i.e., if the land value is 10K and you received 2K for the easement payment, the land value is now 8K.
Here's more info on 1099-S for Sale of Land Easement.
I would just like to comment that I followed the instructions at the beginning of this thread on my 2022 return and this week received a letter from the IRS along with a hefty proposed amount due saying they disagreed with this approach and negated my "offsetting adjustment".
Following up as I was able to successfully appease the IRS in a way that left me with no Tax liability. As previously stated I followed the guidance at the beginning of this thread and the IRS shot that down, saying I should have reported it as ordinary income. After providing them information showing the payment was for an easement, I was instructed that I had to reflect it as a capital gains transaction on form 8949 and Schedule D. So listed it as a sale of property in the long-term section, and I made the cost basis equal to the proceeds resulting in a zero net gain. Per IRS Publication 544, If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. I included this statement in my response for why I used this cost basis. The IRS accepted this response / adjustment and relieved me of my proposed balance due.