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How to report a 1099-s?

     The state of Illinois "purchased" .0095 acres of our home property for a right of way.  We were paid $6000 of which $2400 was supposed to be for the land and $3600 was for "damages" (we had to remove an old fence and put in a new fence).  The 1099 S that we got has the $6000 listed in box 2 (gross proceeds). We were wondering how and where to report this.  1) We didn’t sell our home but since it was part of our home/property can it be considered part of our $500,000 tax free exemption?  2) If that’s not the case, and since the state of Illinois reported the total proceeds on the 1099 is there a way to report the $2400 as proceeds and the $3600 as damages without causing red flags to the IRS. Do I need to try to get the State to reissue a new 1099-s? (probably wouldn't happen).  My understanding is that there should be no tax on the damages. And I do have other paperwork from the Dept of Transportation showing these separate figures. Thanks.

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