Where do I enter 1099-S Proceeds from pipeline easement contract?

[HelenaC · Accepted solution]

You normally do not report the income for granting an easement. You only reduce your cost basis in the property by the proceeds received.

But because you got a 1099-S, the IRS will be looking for it on your tax return. Report the gross proceeds as described above. but enter your cost basis as the proceeds, so that your taxable gain is 0.

Enter the 1099-S proceeds as follows:

•     Go to Federal Taxes
•     Wages and Income
  
•     Investment Income
•     Stocks, Mutual Funds, Bonds, Other
•     Click on either Start or Update
•     Answer NO to Did you get a 1099-B or a brokerage statement for these sales?
•     Choose 'Everything Else' as the type of investment you sold
•     Enter the remaining details for the sale your property.

[debback56]

Where do I report this for our farm.  I have a 1099-S from a payment from Atmos Energy Pipeline for a new easement through 90 acres to put their pipeline in.  

[JamesG1]

Report the payment as Other farm income at the screen Your Farming Income and Expense.

Then report an offsetting expense to zero out the income.  Select Other miscellaneous expenses with a description such as 'right of way sold - basis adjustment'.

Did you sell a right of way easement?  Do you still own the land and still pay 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 a right of way payment for $1,000, your new basis in the property is $9,000.

@debback56 

[lisabell2]

I received income for a utility easement and received form 1099-S. How is this reported in turbo tax?

[Vanessa A]

Since you did not sell your main home, even though you DID receive a 1099-S, you will need to report this under investment sales.   To enter this take the following steps

1. Federal
2. Income
3. Show More next to Investment Income
4. Start next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B) 
5. Select Other
6. Continue through and select Land personal use for the type of investment
7. Answer how you obtained the land, the description can be Easement sale reported on 1099-S
8. You will need to enter the selling price, dates and the cost basis of the items

The cost basis of the land would need to be determined by looking at your property tax records to find out which portion of your total purchase price of your home would be allocated to total land and then you would use the entire sq. ft. of your lot to allocate the percent of your lot that you sold as an easement.

Ex. You paid $200,000 for your home.  

You  look at your property tax bill and see that your improvements assessed value is $50,000 for your improvements and $10,000 for land.  So your total assessed value is $60,000.  

Your total lot is 12,000 sq. ft. and the easement sold was 1,000 sq. ft.

Your land is 16.7% of your total home value (10,000/60,000).  

Therefore your land cost basis would be $33,333.33. 

You sold 8.3 % of your land. (1,000 sq. ft./12,000 sq. ft)

The cost basis of your land that you sold for the easement is $2,777.78 (8.3 x 33,333.33)

When or if you do sell your home, you will then also reduce the cost basis of your home by the amount you received for the easement. 

Sale of Easement

[CHICATEMI]

@Vanessa A , your steps to report the 1099-S for an easement are super helpful. I have a question though.  When calculating the portion of  the land's cost out of the entire purchase, you referenced looking at the county assessor's values.  The purchase of this home was in 1998, so to determine the original cost of the land portion wouldn't I look at how the county asssessor split the land value vs improvements value in the tax year 1998 when it was purchased?  And not look at how the assessor split the value between land and improvements in the year I was paid for the easement?  Here is how the county assessor split the land vs improvements in 1998 versus 2023:

1998 - $51K land & $89K improvements = $140K total appraised value 

2023 - $269K land & $203K improvements = $499K total appraised value 

$190,000 Purchase price in 1998

$51K / $140K =  36.43% land with 1998 assessor values

.3643 * 190,000 = $69,217 Land Cost Basis

$190,000 Purchase price in 1998

$296K / $499K =  59.32% land with 2023 assessor values

.5932 * 190,000 = $112,708 Land Cost Basis

As you can see, the land cost basis is VERY different depending on which year's assessed values are used.

The easement is 13.565% of our land. (4,390 sq ft (easement) / 32,362 sq ft (total land)

$9,389.29 (.13565 x $69,217) = Cost basis of land sold for the easement using 1998 assessed values

$15,288.84 (.13565 x $112,708) = Cost basis of land sold for the easement using 2023 assessed values

Again the figures are very different depending on which year's assessed values we use...1998 vs 2023. 

The amount we were paid for the easement was $15,156 and reported to us on 1099-S.

IF I’m doing it correctly, here are the calculations on whether there is a gain using both 1998 and 2023 assessed values:

$  9,389 Cost basis of land sold for the easement using 1998 assessed values

$15,156 Payment received for easement

($5,767) GAIN

$15,289 Cost basis of land sold for the easement using 2023 assessed values

$15,156 Payment received for easement

$     133 Basis Remaining (NO GAIN)

I appreciate anyone chiming in...

Thanks so much!!

[CHICATEMI]

@Vanessa A  I've tried to reply  to your comment in the thread I've linked below, but it keeps getting removed as spam.  I'll try to start a new thread with my question.

Solved: Where do I enter 1099-S Proceeds from pipeline easement contract? (intuit.com)

[AmyC]

Your cost basis is what you paid originally plus improvements, fence, landscape, etc, if any.  1998 wins for the basis.