Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
are street right of way purchases taxable?
Old 06-25-2022, 05:40 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Jan 2010
Location: dubuque
Posts: 1,001
are street right of way purchases taxable?

The city where I live wants to buy a right of way on my property for a turn lane. the amount is in the 5 digits. I was wondering if anyone here has dealt with this and if the money is taxable as income or capital gains. I don't want to pay taxes on this if I can avoid it, but don't know the best way to handle it. any ideas?
frank is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-25-2022, 05:50 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,077
If you donate the right of way then you won't have to pay taxes on it. Do you itemize deductions? Otherwise, you may be taxed.

Is there a particular reason that you don't want to pay taxes... IOW, will the income throw you to a higher tax bracket or over some other hurdle?

Beyond that it gets complicated.
Quote:
Easement. The amount received for granting an easement is subtracted from the basis of the property. If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received.

Any amount received that is more than the basis to be reduced is a taxable gain. The transaction is reported as a sale of property.

If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement.

If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. See Gain or Loss From Condemnations, later.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-25-2022, 05:52 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 6,756
I'm not sure what is the best route for you as taxes go but it is taxable money. Buying easements or right-way I have always had to claim as income. Good Luck.
street is offline   Reply With Quote
Old 06-25-2022, 06:04 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,077
Quote:
Originally Posted by street View Post
I'm not sure what is the best route for you as taxes go but it is taxable money. Buying easements or right-way I have always had to claim as income. Good Luck.
You mean selling, not buying, right?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-25-2022, 06:24 AM   #5
Thinks s/he gets paid by the post
euro's Avatar
 
Join Date: Oct 2015
Posts: 1,919
Quote:
Originally Posted by frank View Post
The city where I live wants to buy a right of way on my property for a turn lane. the amount is in the 5 digits. I was wondering if anyone here has dealt with this and if the money is taxable as income or capital gains. I don't want to pay taxes on this if I can avoid it, but don't know the best way to handle it. any ideas?
Not a tax expert here but is there a particular reason you think this may NOT be taxable?
I'm not quite sure how your situation arose, but it sounds like the local or state government is claiming eminent domain and making some “fair market offer”. Generally, these offers are negotiable, so you could try to negotiate an additional allowance to cover any taxes. Still, ultimately, you’ll have to PAY the taxes though, I would think.
euro is offline   Reply With Quote
Old 06-25-2022, 06:38 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 6,756
Quote:
Originally Posted by pb4uski View Post
You mean selling, not buying, right?
Yep. When someone buys (easement) the transaction is taxable.
street is offline   Reply With Quote
Old 06-25-2022, 07:13 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 5,759
But do you receive some kind of tax form--like a 1099? How would the IRS know about the funds received?
Bamaman is offline   Reply With Quote
Old 06-25-2022, 07:28 AM   #8
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,891
Quote:
Originally Posted by pb4uski View Post
If you donate the right of way then you won't have to pay taxes on it. Do you itemize deductions? Otherwise, you may be taxed.

Is there a particular reason that you don't want to pay taxes... IOW, will the income throw you to a higher tax bracket or over some other hurdle?

Beyond that it gets complicated.
The definition of Easement vs Right of Way is quite different. When they broke up the acreage I own, for example, the ROW for a street was taken out of the two lots and the lot lines reflect this.
You can retain partial use and enjoyment of an easement, for example a utility easement that you still mow and care for, etc. ROW for a public street is just gone gone gone and no longer a part of your property description.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 06-25-2022, 08:08 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2010
Location: dubuque
Posts: 1,001
the reason I don't want to pay taxes is it puts me in a higher bracket and who wants to pay taxes if they don't have to. it would be a forced sale because if I don't come to an agreement they will condemn it for eminent domain. I assumed it would be taxable, but thought maybe someone that has experience in how to pay the least possible tax.
frank is offline   Reply With Quote
Old 06-25-2022, 08:15 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 6,756
Quote:
Originally Posted by frank View Post
the reason I don't want to pay taxes is it puts me in a higher bracket and who wants to pay taxes if they don't have to. it would be a forced sale because if I don't come to an agreement they will condemn it for eminent domain. I assumed it would be taxable, but thought maybe someone that has experience in how to pay the least possible tax.
Take small payment over many years? See if something could be setup with the city with payment amounts?
street is offline   Reply With Quote
Old 06-25-2022, 08:15 AM   #11
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,891
I am guessing it would be long term capital gains, unless you follow Pb4uski's hint here:
https://www.irs.gov/businesses/small...state-tax-tips
My gut is a good accountant is the way to go with this. Your gain may well be deductible.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 06-25-2022, 08:40 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,077
Quote:
Originally Posted by skyking1 View Post
The definition of Easement vs Right of Way is quite different. When they broke up the acreage I own, for example, the ROW for a street was taken out of the two lots and the lot lines reflect this.
You can retain partial use and enjoyment of an easement, for example a utility easement that you still mow and care for, etc. ROW for a public street is just gone gone gone and no longer a part of your property description.
Not "quite different", but some subtle differences... one is granted to an individual (an easement allowing skyking to cross my property or XYZ utility to run lines over or under my property) and the other is broader (like a public road right-of-way) but they are the same from a tax perspective.

Quote:
... If you grant an easement on your property (for example, a right-of-way over it)...
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-25-2022, 08:41 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,077
Quote:
Originally Posted by skyking1 View Post
I am guessing it would be long term capital gains, unless you follow Pb4uski's hint here:
https://www.irs.gov/businesses/small...state-tax-tips
My gut is a good accountant is the way to go with this. Your gain may well be deductible.
How can a gain be deductible?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-25-2022, 08:55 AM   #14
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,891
exempted due to the circumstances would be a better way to put it. It's worth a professional consultation.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 06-25-2022, 09:25 AM   #15
Moderator Emeritus
Ronstar's Avatar
 
Join Date: Aug 2007
Location: Just north of the 41st parallel
Posts: 14,759
Don't know if this is true or not, but someone told me that the proceeds are not taxable if the city, etc has to condemn the property in order to get it.

I worked on hundreds of roadway property acquisition projects, and most of the properties were obtained through condemnation. In Illinois, the state etc has the right to "quick take" where the governing entity gets the property in exchange for giving the owner the appraised value. The owner can later take the issue to condemnation court if they feel as if the property was worth more than the appraised value.

https://www.natlawreview.com/article...ent-domain-law
Ronstar is offline   Reply With Quote
Old 06-25-2022, 10:28 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Mar 2013
Location: Coronado
Posts: 3,107
Quote:
Originally Posted by Ronstar View Post
Don't know if this is true or not, but someone told me that the proceeds are not taxable if the city, etc has to condemn the property in order to get it.

I worked on hundreds of roadway property acquisition projects, and most of the properties were obtained through condemnation. In Illinois, the state etc has the right to "quick take" where the governing entity gets the property in exchange for giving the owner the appraised value. The owner can later take the issue to condemnation court if they feel as if the property was worth more than the appraised value.

https://www.natlawreview.com/article...ent-domain-law
You may be thinking of a 1033 exchange? https://www.law.cornell.edu/uscode/text/26/1033

It's similar to a 1031 exchange but you have 2 years past the end of the tax year in which the condemnation occurs to acquire the replacement property. The tax is not forgiven, just deferred, as the basis of the original property is carried over to the replacement property.
cathy63 is offline   Reply With Quote
Old 06-25-2022, 01:17 PM   #17
Moderator Emeritus
Ronstar's Avatar
 
Join Date: Aug 2007
Location: Just north of the 41st parallel
Posts: 14,759
Quote:
Originally Posted by cathy63 View Post
You may be thinking of a 1033 exchange? https://www.law.cornell.edu/uscode/text/26/1033

It's similar to a 1031 exchange but you have 2 years past the end of the tax year in which the condemnation occurs to acquire the replacement property. The tax is not forgiven, just deferred, as the basis of the original property is carried over to the replacement property.
Hmmm. That really could have been what was explained to me. I heard it third hand from an old guy, so who knows what the original story was.

Thanks - I didn’t know that you could 1031 proceeds from a condemnation.
Ronstar is offline   Reply With Quote
Old 06-25-2022, 01:33 PM   #18
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,891
it's relevant to me, as we have some unimproved vacation property that I am planning on doing a 1031 exchange with, once we settle on a target.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 06-25-2022, 02:13 PM   #19
Thinks s/he gets paid by the post
euro's Avatar
 
Join Date: Oct 2015
Posts: 1,919
Quote:
Originally Posted by Ronstar View Post
Hmmm. That really could have been what was explained to me. I heard it third hand from an old guy, so who knows what the original story was.

Thanks - I didn’t know that you could 1031 proceeds from a condemnation.
Yes, this is very interesting! However, I'm nt sure exactly what it means. Do you have to dispose of the property altogether that suffered the right of way condemnation or can you keep holding that property and just 1033 the proceeds from the condemnation? Also, in a 1031 exchange, you have to roll over into a "substantially similar" type of asset. Is that the case for 1033 too? If so, what would be an example of something that is "substantially similar" to a condemned right of way? Fascinating topic - just curious!
euro is offline   Reply With Quote
Old 06-25-2022, 09:17 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 10,412
Quote:
Originally Posted by skyking1 View Post
I am guessing it would be long term capital gains, unless you follow Pb4uski's hint here:
https://www.irs.gov/businesses/small...state-tax-tips
My gut is a good accountant is the way to go with this. Your gain may well be deductible.
I agree - a professional is worth the price when you're talking this much money. You don't want to find out later that your logic doesn't quite please the IRS. (Hey! We're the gummint. We don't have to be logical!)
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
the right right of way GrayHare Other topics 6 05-12-2019 05:50 PM
Non-Taxable vs Taxable Investments? treeofpain FIRE and Money 7 08-20-2014 07:53 PM
AA & withdrawals between taxable and non taxable accounts. ron244 FIRE and Money 14 05-18-2007 05:59 PM
How to allocate taxable and non-taxable money? Olav23 FIRE and Money 6 01-10-2007 01:28 PM
Taxable or Non Taxable Seeker FIRE and Money 3 05-07-2005 11:23 AM

» Quick Links

 
All times are GMT -6. The time now is 10:53 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.