Just wondering: If you grant a surface right of way or easement for a road and receive a lump payment (pipeline related but no pipeline,):
Is this taxable?
At what rate?
Is it straight income?
Is it similar to royalty income?
Is it considered a 'tax free return of capital'? (If so ,what makes this so?)
Is Tax basis reduced by the amount received in payment?

Tags: of, right, row, taxes, way

Views: 23992

Reply to This

Replies to This Discussion

I have always paid mine as regular income. My CPA never said any different.
Yes, it is taxable. I am an accountant and have personally received 2 ROW payments as well. You will receive a 1099-MISC for your proceeds. They will be in box 7, nonemployee compensation. Do not treat as rent or royalty income as on Sch. E. Put it in on line 24, page 1, other income. As a side note, if you are a non-resident of La. as I am, but you have received these proceeds from land in La., you will have to file a La. Non-Resident Return. Hope this helps.
Thank you.
Yep. She is correct. I owe Louisiana 800 this year. A good cpa is worth the investment. This gas stuff in another state thing can get complicated. Depending on what state you are in you might have to include this in your home state's return as well.
My understanding was for that portion of the money that was for the ROW easement that it is to be counted at regular income as stated above and therefore taxed at whatever rate is applicable to you for that tax year. However, I was told that any portion that is for "damages" (which is in box 3 I think-don't have the 1099 in front of me) is not taxable at this time. It is to be used to lower the cost basis of your property when/if you should sell it, so in effect it would become taxable as part of any long term capital gain you have at the time of any sale. The company to whom you granted the ROW would break these amounts down for you on the check you receive and it should also be broken down on your 1099. If your easement goes across open land (without timber) then they may or may not be paying you for anything that is considered "damages".
Great information, thanks.
I will go back and look at the check.
There was a timber payment in the total, not sure if it was for timber value or considered 'damage'.
Thanks for the post JD. Good info imo.

JD--- agree 100%---- I have 5 pipelines ROW 3 in Nacogdoches and 2 in Shelby County over last 12 years and my CPA reported primarily as damage, so NO current tax liability was due and IRS has never questioned them. I don't think I even reported the deduction (form 4797 or showed on Sch.D) in basis on return just a internal calculation of decrease in cost basis for future if surface land is ever sold. On review of return-- correction it was report as decrease in basis to offset the 1099 so return balance all 1099s reported to the IRS. No Tax Paid on ROW Income. Same on Drill Pad  Site ROW Damage.

Just hope you don't get audited or hide a good deal of anticipated tax dollars. There's no way you can prove damages. Look at IRS Publication 544 and you will learn about eminent domain and no taxes, but you are making income off of your property by letting a pipeline cross your property without having eminent domain. Why? Because in the end, you can tell them to go around you and put the pipeline on someone else and they will have to find a new route. Under eminent domain, you do not have a choice, so for the easement itself, no tax. Get another CPA or have them guarentee the IRS won't charge you taxes plus penalty and interest. I've seen it too many times. The land agent should have a calculation sheet with all of the dollars spread showing value for the easement, value for the temporary workspace, value for crops, staging areas, truck turn-arounds, storage areas, bore sites, etc. You need that for your taxes, if not, then ask for it.

Micheal--- I have been audited in past during  just routine audit due to Passive type investments with income and that year I had a ROW income and it was not a problem to the IRS then ( year 2002). It was taken as reduction in cost base of land ( Records accounting kept by my CPA for future) so tax simple deferred until and if I sell land one day and will be Capital gain rather than Ordinary tax rate. I paid no tax on about 20K income on a pipeline ROW. I am sure if IRS thought I owed money I would have been hit then on the Audit that occurred in year 2004 for my 2002 return. If it one day is passed to Heirs on my death it will go with  base reset to market value on that date. (Of course value calculated in value of Estate for any Estate Tax that may be due) So you go ahead and pay the tax now if you chose.

The question is whether or not the pipeline company could condemn you or if you had a choice. That's the question. If the pipeline company had eminent domain power, then you and your CPA and the IRS are 100% correct. Who was the pipeline company and what are they carrying through the pipe?

Michael---- I notice you said you negotiated ROW for many years so not a argument about your knowledge ; but The question and my answer has nothing to do with where the company could take ROW under eminent domain or condemn the property it was a simple answer to "how do you report the income receive for the ROW for a road" or whatever the ROW is for on your tax return and my answer is simply as I stated and I agree with the CPA posted answer. This is my experience only and is not Legal or Accounting advise-- each person should handle the way their CPA or Tax Attorney advises--- I sign off this thread now-- talk again one day other subject---- Have good day to you all.


© 2020   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service