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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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My husband and I own 38 acres of property in Wi. On that property

Resolved Question:

My husband and I own 38 acres of property in Wi. On that property we lease space to a communications tower and receive monthly checks. They have offered us a substantial one lump sum payment to perpetuate the lease. They said that this would be taxed by capital gains. We did some research and discovered that if you fall into a 10-15% tax bracket, capital gains tax is zero through 2010. Is this true, and would we have to pay taxes if we agreed to the one lump sum? Would there be any other tax that would be incurred throught his sale?

Tanya Maney
Submitted: 7 years ago.
Category: Tax
Expert:  Anne replied 7 years ago.
HiCustomerbr />
Thank you for using justanswer. How have you reported this income on your tax return in the past. on Schedule E?
Customer: replied 7 years ago.
on our 1040 form, the accountant added (on line 21) added income aat comm (and then amount). He then added it in with our regular income
Expert:  Anne replied 7 years ago.
HiCustomerbr />
From the information you have provided, you are renting a portion of your land to the company that owns the communications tower that is occupying that portion of your land. It sounds like you were receiving a set $ amount a month. This was not going to be a 1x payment nor was it dependent upon a % of profit that the communcation company received, so that makes it rental income.

This should have been reported on 2008 Form 1040 (Schedule E)Supplemental Income and Loss and you should have been able to deduct any expenses associated with either collecting the rent or maintaining the land. ( I know it makes it sound a little more complicated, especially if your only expense was the real estate taxes, but the normally accepted method is to find out from the assessor how much of the real estate taxes you pay are allocated to your home, and how much is allocated to the land. You would then figure out how much land the communications tower took up, say, 1 acre out of 10, and you would deduct 1/10th of your real estate taxes against the monthly income you received).

I understand fully that what I just told you would have cause you to pay more for your tax return, would probably not made any difference in the botXXXXX XXXXXne, etc., but it establishes the nature of that income as rental, which is important since IRS sometimes thinks income reported on line 21 is self employment income (which is clearly not the case here) Besides, its part of my job to tell you what the IRS laws/regs say when it comes to how to handle income on your tax return.

Since this income really is rental income, whether you receive the money monthly or in a single installment, it is NOT eligible for capital gains treatment.

If you sold the portion of the land that the tower is on, THAT would be a capital transaction because of the sale, and that would allow you to use the more favorable capital gains treatment for the proceeds of the sale.

Unfortunately, what you are speaking about is still rental income, which is taxed at your regular graduated tax rate, the same as your W2 income, bank interest, etc.

Please see below for more information:

Tax Topics - Topic 414 Rental Income and Expenses

Tax Topics - Topic 409 Capital Gains and Losses

I hope this helps clarify this for you.
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