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How do I report the sale of a right of way on my farm? An…

How do I report...

How do I report the sale of a right of way on my farm?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

An oil company paid me for the right of way for their pipe line across my land.

Accountant's Assistant: Is there anything else important you think the Accountant should know?

How do I determine my basis in this or can I just reduce my basis in the entire acreage?

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Answered in 6 minutes by:
3/7/2018
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,055
Experience: Adjunct Professor
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Hey! I'm Carter, I'm a CPA and can help.
If the payment is less than the basis properly allocated to the part of your land affected by the right-of-way, reduce the basis by $10,000.
If the payment is equal to or more than the basis of the affected part of your land, reduce the basis to zero and the rest, if any, is gain from a sale. The gain is reported on Form 4797 and is treated as section 1231 gain if you held the land for more than 1 year.
You can calculate basis by the square footage of the right away divided by total acrage. Then multiply that fraction by your total basis.
Let me know if you need anything else. If not, please leave a rating. Thanks!
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Customer reply replied 1 month ago
What if I don't know the exact acreage of the right of way or the total acreage effected by the right of way/
Customer reply replied 1 month ago
The area of the pipe line effects the ability to irrigate the land below the pipe line
If you can come up with a reasonable way to allocate the basis, the IRS will side with you. Square-footage is just one way to do it. You can use the approximate area that you can no longer itrigate.
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,055
Experience: Adjunct Professor
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Customer reply replied 1 month ago
Where does the $10000. amount come from?

Sorry. Pulled that part from an IRS example. The $10,000 is the amount received in exchange for using the right of way.

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Carter McBride
Carter McBride
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Category: Tax
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