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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29535
Experience:  Taxes, Immigration, Labor Relations
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I have an easement payment to me to my property. We tried to

Customer Question

I have an easement payment to me for damages to my property. We tried to get the payer to change the form sent from a 1099 misc other income to a 1099s. what type of documentation should I send to the irs and please be specific. can I do it when I e-file my return
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
A compensation for the right-of-way (ROW) is classified as an easement.Compensation for damages is treated separately.Regarding determination of taxable income...The compensation for the granting an easement is treated as the sale of an interest in real property.Please verify that is reported on form 1099S - and not on form 1099MISC.Please see IRS publication 17 - The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. It reduces the basis of the affected part of the property. If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain.So - we need to allocate the basis to that portion and report that as a sale.The gain will be treated as capital gain - long or short term depending how long you owned the property..Compensation for damages would be ordinary income - but we may deduct actual expenses to repair damages.Amounts paid for expected damages, but where no damage was done, do not qualify for treatment as return of capital. It was held in Gilbertz v. United States, 808 F.2d1374 (10th Cir. 1987), rev'g 574 F. Supp. 177 (D Wyo. 1984), that payments for anticipated damages are ordinary income and not return of capital.See here - page 65 - for damages is reported on form 1099MISC box 3 - please verify because some payers are mistakenly report in box 7.Let me know if you need any help.
Customer: replied 1 year ago.
we did not get a 1099s and the amount paid to us is the same as the amount of damages to our property and the same amount as reported as other income on 1099 misc
Expert:  Lev replied 1 year ago.
If you think that income was reported incorrectly - according to the IRS - you need to communicate with the sender and ask for correction.
Expert:  Lev replied 1 year ago.
If the issue is not resolved within a reasonable period of time - the IRS suggest to report as you think is correct - and attach a note with explanation of facts and reasons.However - we need to classify correctly every payment for tax purposes -- permanent easement - will be reported as the sale and result capital gain -- temporary easement - will be reported as rental - and after deducting rental expenses - will be taxed as ordinary income -- compensation for damages is reported as ordinary income.I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.