1099-misc box 3 for pipeline easement

Forum|Forum|11 months ago
April 15, 2025
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Received 1099-misc with box 2 "royalties" and box 3 "other income". Box 2, no problem. However, Box 3 was for a Pipeline Easement. This should be a capital gain. The gain is much greater than my basis. How do I move 1099-misc box 3 "other income" to schedule D so it will be taxed at the long-term gain rate.

DianeW777

First let's determine if the easement income is taxable. Next, if you decide it is taxable, this might be a 'right of way' payment. If so then you should follow the steps below with details.

Grants or sales of limited easements are usually not treated as taxable sales of property. Instead, amounts received are subtracted from the cost basis/purchase price of the property. Any amounts received in excess of the cost basis are treated as taxable gain.
IRS Publication 544

If you no longer own the portion of land where you were granted an easement payment:

To enter your sale in TurboTax, follow these steps.

Open or continue your return.
Navigate to the investment sales section:
- TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
- TurboTax Desktop: Search for investment sales and then select the Jump to link.
  - Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other
Answer Yes to the question Did you sell any of these investments in 2024?
- If you land on the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.
- Click this link for more information. Where do I enter Investment Sales?

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gtbyrdAuthor

Received 1099-misc box 3 for sale of permanent pipeline easement. As per IRS publication 554: since the amount received is more than the basis, it is a capital gain to be reported as a sale of the that specific part of the property. The IRS monitors 1099-misc box 3 and therefore it must be reported. Unfortunately, Turbo Tax forces 1099-misc entries into ordinary income.

I need the actual "Turbo Tax" procedure to acknowledge the 1099-misc box 3, but have it report as a schedule D capital gain.

DianeW777

Yes, you can and should enter your easement payment as a sale. The instructions below will allow you to enter the information in your return as a sale of investment property, which will place it on Schedule D for capital gain treatment. The instructions below are placed here for your convenience and are duplicated previously.

First delete your Form 1099-MISC from your return using the link for your TurboTax version.

If you're using TurboTax Online software and need to delete a form, click here.
If you're using TurboTax Desktop software and need to delete a form, click here.

Now use these steps to enter your capital gain sale.

Open or continue your return.
Navigate to the investment sales section:
- TurboTax Online/Mobile: Go to investment sales. If using this application, make sure it is open
- TurboTax Desktop: Search for investment sales and then select the Jump to link.
  - Or Personal Tab > Continue > I'll choose what I work on > Scroll to Investment Income > Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (important to select this)
Answer Yes to the question Did you sell any of these investments in 2024?
- If you land on the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.
- Select how you acquired the land, the date of purchase and the date of sale.
- Click this link for more information. Where do I enter Investment Sales?