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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I have received two payments related to a natural gas

Customer Question

Good morning: I have received two payments related to a natural gas pumping station and pipeline. The first payment is for a right-of-way / easement and is based on 6 acres of land involved; the second payment is for damages to 9 acres of land which includes the same 6 acres. My question is: in calculating the Long Term Capital Gain, do I treat these as two entirely separate transactions? LTCG on the 6 acres = price less basis; LTCG on the damages for 9 acres = price less basis ... it seems like I'm deducting the basis on the 6 acre segment twice in calculating the gain. What do you think?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

Until you sell the land you do not report any capital gains. The payments you received will simply reduce your basis in the land. For instance, you purchased the property for 350K and the gas company pays you 50K for easement and another 50K for damages. You spend 25K to restore the damaged property. When you sell the property you will calculate your capital gains as followed:

Sales price

- your basis

- selling expenses

= capital gains.

You will calculate your basis by reducing the purchase price by the payments (350-100) and increasing it by improvements or restoration. Your adjusted basis for calcuating capital gains will be 275K (350 - 100 +25).