Property easements 1099-NEC

[mmmkcook]

I received a 1099-NEC from the town for a temporary easement and a permanent easement. The temp easement should be rental income? and the permanent easement should reduce my property basis? When I entered the total amount in TurboTax it is telling me to create a new business. How do I do this correctly in TurboTax? Thank in advance.

[PatriciaV]

Yes, a temporary easement is treated as incidental rental income that should be reported on Form 1099-MISC as "rent." However, this payment can be reported on Form 1099-NEC to the owner but is not considered self-employment income. Payments for permanent easement sales are not considered income. Instead, the payment lowers your basis in the property.

To enter a Form 1099-NEC that is not for self-employment:

Open your return and go to Federal >> Wages & Income >> Other Common Income >> Income from Form 1099-NEC. Click Start/Update.

Or go to Tax Tools >> Tools >> Topic Search. Enter 1099-nec then click Go.

1. On the screen Did you get a 1099-NEC?, click on Yes
2. On the screen Do You Want to Enter Your 1099-NECs Now?, click on Add a 1099-NEC
3. On the screen Let's get the info from your 1099-NEC, enter your information and click Continue
4. On the screen Describe the reason for this 1099-NEC, enter a reason and click Continue
5. On the screen Does one of these uncommon situations apply? Select This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby and click Continue.

These entries will report the income on Schedule 1 Line 8z Other Income. The total from Schedule 1 Line 10 flows to Form 1040 Line 8 as ordinary income.

[mmmkcook]

The 1099-NEC I received had the $$ for the Temporary easement AND the $$ for the Permanent easement. How do I get the $$ for the Permanent Easement out of "Other Income"?  Additionally I have Royalties that are reported on Schedule E for the same property. The $$ from the 1099-NEC does not flow through Schedule E, should it? Does it matter? Thanks again for the help.

[JamesG1]

Your intent is to reverse the IRS form 1099-NEC reported to Other income.

On occasions,  Other income may need to be reversed.  Post the negative entry as follows:

• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Click to the right of Less Common Income.
• Click to the right of Miscellaneous Income, 1099-A, 1099-C.
• Click to the right of Other reportable income.
• At the screen Other Taxable Income, enter a description such as “Incorrect entry [amount]” and a negative amount. 

The entries will be reported:

• on line 8z of Schedule 1 of the Federal 1040 tax return, and 
• on line 8 of the Federal 1040 tax return.

Make sure that you keep records of all transactions. Later, you may need to demonstrate to the IRS that this is not taxable income.

This method allows you to report the IRS form 1099-NEC for the benefit of the IRS, yet still report the income correctly on your Federal 1040 income tax return.

The permanent easement portion would be recorded as an adjustment to cost basis for the property.

The temporary easement portion may be reported under the Schedule E rental activity.  You may want to select Add income to report the amount of the temporary easement separately.

@mmmkcook 

[mmmkcook]

With both your answer and JamesG1's answer I have figured it out. Thanks for the help.