A neighbor needs an easement through my property to get electric.
I have tentatively agreed to allow it for $1,000; $500 for reimbursement of my legal fees and $500 for the easement.
How do I handle this on my income tax? I presume the reimbursement isn't taxable, but the sale of the easement is. As ordinary income, reduction of the basis on the land, capital gains on sale of the "land", or something else?
"jack" wrote
Are you giving the easement to the landowner or the power company?
The easement isn't a "sale" of the land. It's still in your name, you pay property tax on that strip (or the spots where the poles are), and you can sell ""that land"" and he can not (although a sale of his land would presumably be inclusive of the easement rights). It's been a while since I last looked into this type of thing, but I suspect that it's a basis reduction as you lose the use of that land, or at least the use is restricted.
Thats a good question. I assumed I was giving it to the landowner, but it was never specified. I guess I will find out when I get the written document.
Could it be Schedule E rental income? That would allow you to include the $1000 as income, and $500 fees as an expense.
But a basic reduction would increase your capital gains when you eventually sell (assuming you are above the exclusion). So it sounds strange that you have to pay additional tax for allowing someone else to use your land.
reimbursement
It can't be. "Rents" are meant to be periodic payments (even if they occur once).
This is a sale of property rights.
Yes, there is a basis reduction (also) - but that's because part of the asset has already been sold.
I recall (years ago) the case of a farmer granting an easement to a power company. The price paid was not all that great (few thousand?), and it was held that he had to prorate the basis of the property and pay capital gain tax right there and then, not just lower his basis and pay it "someday".
But, I sure wouldn't do it this way for chump change.
"Gil Faver" > taxable, but the sale of the easement is. As ordinary income, reduction
What does "prorate the basis of the property and pay capital gain tax right there" mean?
Pay tax on the easement pay? That's not a big deal.
the easement took up x sq. ft. of the 100 acre farm. What is the basis of the x sq. ft.? use that to calculate the gain, and pay tax.
On Nov 12, 8:17 am, "Gil Faver"
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