Easements provide a legal mechanism to use land for a specific purpose without having to buy the property. While the current owners receive compensation, in most cases future owners of the easement will not receive payment.
How do I account for a land easement?
Entities typically account for their land easements by applying Topic 350, Intangibles–Goodwill and Other, Topic 360, Property, Plant, and Equipment, or Topic 840, Leases.
What does an easement entitle you to?
A non-possessory interest in real property that provides the holder with the right to use another party’s real property for a specific purpose. The underlying legal title to the real property encumbered by the easement is retained by the original owner for all other purposes.
What is easement money?
An easement, or easement arrangement, is a term describing a situation in which one party uses another party’s property, where a fee is charged to the property’s owner in exchange for the easement rights.
Do you depreciate an easement?
Depreciation Rules for Easements While an easement is essentially the transfer of intangible rights, the IRS doesn’t allow depreciation of the sale amount, because the sale ties directly to an interest in real property. The IRS doesn’t allow amortization of an easement for the same reason.
Do you get paid for an easement on your property?
Instead of buying numerous tracts of land to install a new sewer system, for example, a city purchases easements across the property of various landowners. While the current owners receive compensation, in most cases future owners of the easement will not receive payment.
When to report utility easement payment as income?
Payments for utility easement sales do not get reported as income on your tax return. Instead, the payment lowers your basis in the property. That only becomes important later when you sell the land. The only time you report the payment as income is when the payment exceeds your basis in the property.
What is gain on sale of land for easement?
If the portion of the land you sold represents 15 percent of the total acreage of your property, then your basis in that portion equals $56,250, which is 0.15 times $375,000, the price you originally paid for your home. Therefore, the $100,000 payment provides you with a $43,750 gain on the sale of your property.
How is a right of way easement taxable?
Right of Way Easement Taxability. Instead, the easement reduces your basis in your property. Via the easement, you essentially sold an interest in your property, but not the property itself. If your property basis was $375,000, your grant of the ROW easement drops your property basis to $325,000.
