My wife received a 1099-Misc. The amount she received is listed in Box 3 - Other Income. This money was paid for an option to purchase a "right of way" easement on some property she owns. The option gives a gas transmission company the right to purchase a right-of-way on the property for a specified amount within a two-year period.
So, if a gas pipeline is built on the property within two years, there is a specified agreed payment for the actual right-of-way.
So how is the option payment handled for taxes?
If this were a straight up purchase of a right-of-way, it's a return on capital against the cost basis of the property. But because it's an option to purchase, it's gets complicated, and I haven't been able to find any examples on how it's handled for tax purposes.
Did you sell a right of way easement? Do you still own the land and still pay property taxes on the land? Or was there an actual sale of the land and the new owner pays the property taxes on the land?
If you still own the land, the general treatment is that the payment is not income but reduces the basis in the land that you own. So, if you paid $10,000 for the land and received this right of way payment for $1,000, your new basis in the property is $9,000.
You still have to deal with the 1099 that was reported to the IRS. Report the income, then immediately report a minus entry for the same amount. Reference both entries as 'right of way sold - basis adjustment'.
Follow the steps below to report this income that is not reported as self-employment income.
View the entries at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets.
The income will be listed on line 8z of the Schedule 1 Additional Income and Adjustments to Income and line 8 of the Federal 1040 tax return.
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