I own a property in Texas. A pipeline was put in across the property and the company I am buying the land from received a check for $61,444 which they applied to the principal on my loan. I need to know what my tax liabilities are concerning this money. Do taxes need to be paid in full now on that money or when land is paid off?

ANSWER

The BIDaWIZ Team's Answer:

Typically, you need to identify whether or not the amount paid exceeds the basis in the property that was affected. Specifically, because an easement is a property right, it is an Internal Revenue Code (IRC) Section 1202 capital asset or an IRC Section 1231 business asset. The landowner who is paid for granting and easement must determine their basis in the portion of the land that is affected by the easement, which often is not the entire property. However, the landowner is not required to allocate the basis of the property affected by the easement between the rights that were sold and those that are retained. The affected property's full basis is used to offset the payment received, so the gain is generated only if the payment exceeds the property's basis (Rev. Rul. 77-414, 1977-2 C.B. 299). If the payment for the easement exceeds the property's basis, then the gain is reported as a sale of property.