Replies to This Discussion

Permalink Reply by Michael Allen on May 16, 2013 at 11:11

For the most part, a pipe size from 6" to 16" can be built in a 30' wide easement and an additional 40' of temporary work space during construction. Pipe size from 18" to 36" can be built in a 50' wide easement with an additional 50' of temporary work space. Larger than 36" requies at least 60-75' easement width and an additional 75-100 feet of temporary work space during construction.That doesn't include additional temporary workspace needed at road crossings, streams, river bores, steep terrain, etc. Multiple line rights is another issue entirely and should be discussed up front. An interesting note is that even a pipeline company with condemnation rights can not condemn for the second pipe except under certain strict circumstances. Other utilities such as fiber optices must be described as only used for valve communications and not to be sold as public use. Electric power is normally a seperate easement used only for valve sites and meter stations; negotiated seperately.

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Permalink Reply by Herndon on May 17, 2013 at 3:04

Kim, thanks for the response. But this is a ROW for a business they are wanting to build behind my land. They need the ROW for a road to access their business. The road will be 100' wide and run the whole depth of my property. I figure about 4 acres will be taken up with the acquisition and not to mention the 100' of Hwy frontage that would go along with it.  I don't believe I will be accepting their offer anytime soon.

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Permalink Reply by KIM CASWELL on May 17, 2013 at 19:35

100ft for an access road is huge most access roads can be placed 25 to 30 feet wide. What kind of equipment are they transporting across your property that requires a 100ft row?

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Permalink Reply by Michael Allen on May 18, 2013 at 1:45

Yes, 100' wide does sound somewhat excessive, however, county road easement widths average 60-75' from fence to fence that includes areas for drainage and are 2 lane roads. It is possible that constant large truck traffic could need wider roads for more safety and for passing..

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Permalink Reply by Michael Allen on May 16, 2013 at 8:52

Unless the pipeline company has the right to condemn, then all of the monies are taxable as ordinary income. Even damages paid are income unless you can show that you spent money on fixing or improving something associated with the pipeline project. This is hard to justify since most all pipeline companies fix all of their problems, fences, gates, re-seeding, erosion control, etc. Some landowners like to get paid to re-seed themselves, and that is a write-off. Also, some landowners want to have their person rebuild their fences or tile repair. If the company pays you for that, and you use that money to pay your contractor, again, a write-off.

If the company has the power to condemn, all of the easement money is not taxable under IRS rules. Any "damages" or crop payments are all taxable as ordinary income. Even if you agree with all of the offers and payments, in the end you still have no choice in having a pipeline come through your property, but if a company does not have that power, then you have a willing seller-willing buyer situation and all monies are considered income.

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Permalink Reply by adubu on May 16, 2013 at 9:08

Micheal---if want to give your money to the Feds go right ahead--- You can not dig to lay pipeline without damage and give up usage of your land free without reduces cost base to land for future capital gain calculation. If your CPA wants you to pay ordinary income on it I would fire him and get another that is knowledgeable on property Tax law.  Read JD Redfield's (CPA)reply on first page of this discussion. If anything tax wise it will be Capital Gain Tax one day if and only if you sell the land not Ordinary income tax.  Of course you do whatever you like for one thing for sure Obama will not send it back to you. You should claim any deduction that has merit for if not claimed you will not receive credit.

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Permalink Reply by Michael Allen on May 16, 2013 at 10:39

You will never prove that property is "devalued" by a pipeline. There is no proof that anyone sells their property, with a pipeline, and discounts the land accordingly. The Capitol Gains only applies if there is eminent domain, and then only after a sale and discounted by the number of years after the payment. The only basic rule is that no permanent improvement can be placed on the easement, but anything else is subject to engineering safety issues. Driveways, roads, fences, parking lots, temporary barns, sheds, etc are all allowed. If do have a large payment coming you should look at a 1031 Exchange to take care of excess payments. A few years ago a right of way group invited 2 IRS field supervisors to a meeting just to answer this question. Many years ago the idea was to put as much as possible on the "damages" side and as little as possible on the "easement" payment. Again, under eminent domain, all of the easement payment is not taxed, but all of the "damages" are ordinary income. It's not a matter of giving Obama more money, it's a question of facts. If no eminent domain power, the landowner has the power and ability to say "NO" to a pipeline company. No different than a tenant leasing the property as a share cropper, it's pure income. On the other hand, if the DOT comes to you and says they are putting a road across your property, all of the payment is considered not taxable uner IRS 544; same as a qualified utility with eminent domain power. If you never get audited, you're in good shape, and good luck.

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Permalink Reply by Andrew on May 16, 2013 at 18:44

The tax matters are way out of my league, but if an entity with eminent domain power wants to use your land for a ROW, even if they don't condemn, reserve your mineral rights if property is actually sold to that entity. Even if not acquired through eminent domain, prescription does not run against minerals under land owned by an entity with taking power so long as that entity or another with taking authority owns the land. If you don't own the minerals at the time of the sale the minerals will revert to YOU when that servitude prescribes (not the taking entity that owns the land when Rx runs).

I don't know the practicalities of negotiating ROWs at all, but at least in the abstract it seems like it would better to sell the strip of land to the company rather than grant a servitude for a pipeline or right of way. You don't have to pay property taxes on that land in the future, you get to keep the minerals forever (practically), and you don't have the potential headaches with removal if the pipeline/right of way is extinguished or abandoned. Plus I imagine the proceeds from the would be taxed as a capital gain and even subject to a 1031 exchange.

Again, I don't know much about how these rights of way are actually acquired in practice, but selling seems like a better scenario then having a permanent structure on property you own that renders it useless to you. I'd love to know what the more seasoned ROW negotiators have to say on the subject.

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Permalink Reply by Michael Allen on May 17, 2013 at 2:46

A company with condemnation power can not condemn mineral rights only for easements, and temporary work space/access roads,  if it is a pipeline or power line company.

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Permalink Reply by Andrew on May 17, 2013 at 3:08

I know they can't condemn the mineral rights themselves. In fact, this is why prescription doesn't run against land they acquire, whether or not by condemnation. I was saying that rather than granting a servitude for a pipeline or right-of-way, it seems like the better course to sell them the land and reserve the minerals forever.

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Permalink Reply by 1kw6x71km1v37 on May 17, 2013 at 3:46

What would be the price per acre on such a deal?

I'm thinking industrial/plant-related real estate, maybe $10-30,000 per acre.

But I really have no way of knowing, that's just a wild guess.

I have seen some house sites going for well over $30,000 per acre.

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Permalink Reply by Andrew on May 17, 2013 at 4:17

That's a good question. I assumed that the cost for condemning or acquiring a servitude that renders the encumbered property totally useless to the landowner would be the market value of the land (or more, if they're trying to pay to keep you from fighting it). Is this accurate?

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