If you receive payment for a service or right on your land, you may or may not have income subject to federal income tax. You may receive payment for a service or right of way to install pipes, electric cables, or telephone lines, or for flooding a portion of your land, for example.
Whether the tax is taxable from your foundation in land or in another property subject to a servitude or road. According to the IRS, if you receive less than your wages for a service or a straight road than your basis in the affected property, you reduce your basis in that portion of your property. Then, if you eventually sell or dispose of the property, which reduces your basis, it increases your gain on the sale or disposal or your loss, according to tax consequences.
Your basis would generally be your expenses, unless you acquired the property either by gift or inheritance. You can find information about how to base your assets in IRS Publication 551, Foundation Assets. You could place your foundation on the property by acres or square feet, depending on the easement or the right of contract or agreement.
If the payment you receive in the service or right of way is more than your basis in the property, you will reduce your first basis to nothing. The excess profit would be treated as sales> property tax. This profit should be reported on form 4797, Sales of Business, if you use the land for cultivation. another matter of business. If you held the land for more than one year, you may qualify for a Section 1231 gain.
According to the IRS, if you own a farm and your crops are damaged by construction for an easement or on a road, any payment you receive for crop damage will not reduce the basis in your assets. Instead, it should be reported as other income in Schedule F.
If the property that is affected by the servitude or right of way is not used for farming or any other type of business, you would also reduce the basis in the property. The IRS indicates that if it is not possible or practical to separate the basis of the portion of the property affected by the easement, you may reduce your basis in the entire property.
If you receive more than your base payment, you would report the service or right of way for the sale of the property.
If you are forced to give up a lien or right under the threat of condemnation, you must report the transaction for tax purposes as profit or loss on the condemnation.
The IRS indicates that if you give a perpetual easement as a conservation easement, you could treat it as a charitable contribution, not as a sale, even if you retain an interest in the property.
Sources:
Form 4797, Sales of Business Property
Publication 225, Tax Guide, IRS
Publication 544, Sales and Other Dispositions of Assets, IRS
Publication 551, Basis of Assets, IRS
Report:
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voices.yahoo.com/hoas-deeds-rights-way-ccrs-easements-7667662.html?cat=3
- The Land Trust Alliance: Land Conservation in America: voices.yahoo.com/the-land-trust-alliance-land-conservation-2768516.html?cat=17
Conservation: www.nature.org/aboutus/privatelandsconservation/conservationeasements/index.htm
