I received and easement payment and reported it as a debit to cash and a credit to the land value. Why is it showing as a reduction of partnership capital in turbo tax?

[Milgard]

Oops, an easement, not and. I was told in another section, when I asked how to report a 1099S, that I show a reduction of the land value by the amount of the easement payment.

[PatriciaV]

If you apply the easement payment to the land basis (a partnership asset), a reduction in partnership capital by the same amount is necessary to keep the balance sheet in balance. 

Total assets = Liabilities + Partners Capital -- the formula that underlies the balance sheet.

[Milgard]

I don't get your answer. Where does the other part of the entry go?

I received cash, so cash goes up. The asset value goes down. Where does the other half of the partnership capital  entry go? 

[PatriciaV]

If you made no other changes to the balance sheet, the partners' capital accounts shouldn't be affected. Is your balance sheet in balance? Form 1065 p5-6 Schedule L.

[Milgard]

I agree, it shouldn't affect the capital balance, but the entry automatically causes the capital balance to change in Turbo Tax. The schedule L and schedule M-1 show the correct balance sheet amounts, including Partner's Capital accounts, but Schedule M-2 shows an increase in the Capital accounts by the amount of the easement. The Capital Balance in M-2 is higher than the capital balance that appears on Schedule L. But in the step by step instructions, the instructions say the tax and book partner capital accounts match what is on M-1. 

Maybe I saw the wrong information for reporting the 1099S on the LLC's Business return. Can you tell me how to report the 1099S for the land easement?

[DaveF1006]

Yes, here is how to report the income from the land easement.

1. Go to federal taxes
2. income
3. Other income
4. All other income

In the description box that follow, type in 1099-S received for land easement and then record the amount listed on the 1099 S.

@Milgard 

[Milgard]

Dave...that is definitely a wrong answer. Easements are not taxable.