How to adjust basis of depreciated asset?

Forum|Forum|5 years ago
January 6, 2021
2 replies
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We've received a payment on 1099-S for an easement for a sidewalk in the front of a property we rent to a business. IRS says the income can be recorded as a reduction in the cost basis of the property and we wish to do that in Turbotax but I don't just want to go in and change the basis in the Asset Worksheet.

Where can that basis deduction be recorded, or better, how? I've seen this asked and answered in very vague terms and specifics are needed.

Extra credit: Over 40 years, we've already depreciated this property below the amount of the 1099-S but not to zero so we can apply part of the payment to the basis reduction and the rest will be ordinary income by a depreciation recovery, I suspect. How would that be recorded?

M-MTax

I agree you shouldn't mess with the worksheets. Keep track of this outside of any tax program.

Carl11_2

Employee

For starters, the only thing you were paid for, was land. Remember now, land is not depreciated. So this will note change anything what-so-ever on your depreciation one single bit since land is not depreciated anyway.

But what "exactly" were you paid for?

Was the payment for the actual land? Or was the payment for "rights" to utilize that land, and you still own the land? This matters.

If the payment was for the land, then that "should" reduce the amount of land you own, as well as pay property taxes on. This is fully what I expect. But it depends on just who or what entity paid you for this.

Carl11_2

Employee

Addendum: I just did a test scenario and it appears to me that TurboTax can handle the situation just fine, if you did in fact sell a portion of the land, as opposed to selling the "rights" to a portion of the land.

F

FixedOn66Author

Employee

Thanks for all the replies. Those were helpful in thinking this out.

Land Only: Correct. While we could never build on this land as it was an easement when we bought it, now that they’ve build a sidewalk, they’ve finalized or perfected (my terms) the easement and evidently had to pay us for the land as we can no longer, for example, park a car or put a temporary sign on that land. So I guess we sold some land.

However, when we bought this property (remember, 40 years ago) it appears from the assert worksheet that we put the lions share of the basis into the building making it as depreciable as possible. So, the basis of the land is negligible and thus we will have to recognize the majority, if not all, of the payment as ordinary income.

Thanks again for the insights. It really helps talking.to those who understand taxation and accounting. You guys speak my language. 😎