Easement/Income/Tax Question

grapehead

grapehead

Well-Known Member
Joined
Mar 21, 2005
Location
Raleigh
Posting here bc I'm not yet motivated enough to consult an actual professional, IIRC we have some CPA/tax people in here...

City is putting a sidewalk in my front yard. I've got a letter with an offer to purchase both permanent easements for the sidewalk area, and temporary easements for the construction process. What will the tax treatment of the easement payment end up being?

My research suggests that temporary easements are treated as rental income, and permanent easements may be anything from offsetting my basis in the property (no tax), to being considered a sale and then dealing with capital gains (tax).

Also, am I under obligation to render any part or whole of the easement payment to the mortgage holder? I'm currently intending to fork it all over as a principal payment anyway.

What y'all got on this?
 
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In many areas the DOT owns the first 5-10 ft off the edge of the road.
 
I suspect the mortgage folks would be "interested parties" as the lienholders, and the asset is being de-valued (if perm) and they would have to be consulted and very likely will have to sign off on the process (PITA!)

Perm / would be reduction in basis of the property is how I would treat this, so just in round numbers, you pay $100k for a home/property, they give you $5k, your "basis" is now $95k on that house / no current tax effect. You sell that home for $115k, you have 20k of "gain" but homes are exempt from that tax (up to like 250k of gain) so no tax effect again.

For Temp...say it is $1000 I can sorta see how "rental income" might be applicable as the value in theory does not decrease... if you rented out a bedroom as example, that is def income so I could see this being treated in the same manner by IRS. In theory you would jump through all the hoops to figure out how to apply interest, taxes, etc against that rental income...even then I expect it to make a "profit" and you would pay tax on that.

AND...if they do both but cut you a $6k single check for both temp / perm... hopefully you have some breakdown of what is what...so you can only pay tax on temp part.

The interesting question will be if you get any kind of tax (1099 like) form for this easement....
 
I saw a 1099S mentioned in some opinion articles, hopefully that would happen and have a breakdown of the temp/perm amounts for tax treatments.
 
Whatever you get, set it aside. Since you'll then have a nice sidewalk that will add curb appeal and value to your house, the county will increase your tax base value, and get it all back in additional property tax over the years.

Here, they won't buy the land, but they will charge you for installing the curb and sidewalk in front of your house. (Actually, that make sense, because it can make your property more valuable. If you buy a lot in a new subdivision that has curbs and sidewalks, you are directly paying for that site development bundled into the price of the lot.)
 
Update: I and all my neighbors dragged my feet on settling with the City of Raleigh bc property values here are constantly climbing. The City sent out notices threatening condemnation to make this sidewalk project happen. I finally signed off on an offer 2-3 times the original offer.

Mortgage holder reaches out to me and says they have to sign off on the deal too for it to go through and need a bunch of paperwork and info from me, including an appraisal. Appraisal must be by their approved vendor and costs $895. Buddy who is an appraiser says average cost in this market should be $4-500. This feels extortive to me.

Anyone with any insight on this situation?
 
Can't. Already tried that.

"The city does not pay for independent appraisals"
 
Loganwayne said:
well id tell them to kick rocks then, they need to talk to your mortgage company and the two of them can figure it out or your out.
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Exactly. Or increase their $ to cover the added $ spent to sell. They want something that you have and are causing undue stress and frustration and expense to you, no reason they can’t fairly compensate you for the added expense. That expense is a direct result if their purchase, they should be responsible for the costs.
 
rockcity said:
Exactly. Or increase their $ to cover the added $ spent to sell. They want something that you have and are causing undue stress and frustration and expense to you, no reason they can’t fairly compensate you for the added expense. That expense is a direct result if their purchase, they should be responsible for the costs.
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I like your thoughts. Both the city and the mortgage holder are refusing, so I'm just gonna dig in and drag my feet til someone budges!
 
Loganwayne said:
Don’t forget to add that your properties value is continuing to increase and you may not except the original offer due to the time lapse.
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Possibly...already signed paperwork with the city and accepted their payment though.
 
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