Does it matter what the payment was for from a state buying my land to widen the highway?

[ahbarr]

Part was for the land, part for rebuilding a service road; are both payments capital gains?

[Hal_Al · Accepted solution]

Yes. It also matters what IRS form the state reports the income to you on. 1099-S, 1099-Misc or something else. Compensation for building the service road is known as “damages”. You don't report any of the payment, unless  you get an IRS form. You  reduce your cost basis in the remaining property, by the amount you received, for when the property is sold in the future

The damages is a direct reduction in your cost basis, for the future.

The sale of the land may have resulted in a capital gain. You have to figure out from your original cost what the basis in the sold portion was. I’m of the opinion that you can treat it all as a cost basis reduction, just like the damages

The IRS gets a copy of that 1099-S, so they expect to see it reported on your return. 

TurboTax does not have an entry point for a 1099-S (other than home sale). So, for option #1 In TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
- “I’ll choose what I work on” Button
Scroll down to:
-Investment Income
   -Stocks, mutual funds, Bonds, Other (Real estate is other)

Just enter the same amount you received as your basis, for a net gain of zero

[ahbarr]

Thanks so much for your help!

[SweetieJean]

https://ttlc.intuit.com/questions/4017568-where-do-i-claim-rental-property-partial-purchased-by-emin...