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Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3607
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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How is an Oil Pipeline easement taxed?

Customer Question

How is an Oil Pipeline easement taxed?
Submitted: 10 months ago.
Category: Tax
Expert:  Barbara replied 10 months ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

Payments for pipeline easements can be categorized in different ways. Different categorizations can have different tax consequences to the landowner. Whether the easement payment qualifies as a capital gain or ordinary income depends upon whether the pipeline company obtains a permanent easement or a temporary right to use the land. The maximum capital gains tax rate for an individual is generally lower than the maximum ordinary income tax rate. Temporary work space payments and payments for lost profits (such as crops) generally are taxed as ordinary income. Under certain circumstances, a permanent easement payment may qualify as capital gain income. (A landowner generally is allowed only to offset the proceeds from the sale of a permanent easement against the landowner’s cost basis in the easement tract. In limited circumstances, the proceeds of the easement payment may be applied to reduce the aggregate basis in both the easement tract and the landowner’s remaining property.)

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Expert:  Barbara replied 10 months ago.

Just following up with you to see if you have any other questions or concerns. If so, please let me know so I can assist you further.

Best regards,