What you need to know about landowner liability

In 1994, Charles and Dale Glenn leased 420 acres of good farmland in Mississippi County, Missouri. And since 1994, they dealt with a nuisance that can trouble almost any landholder: intruders. Read more

The County Agent - Who he is and why you should know him

Finding property for sale can be an easy task for any first-time land prospector. All anybody needs to do is drive through any community in America and note the ubiquitous “For Sale” signs that dot the landscape like wildflowers. Read more

The best way to hire a ranch manager

Managing a large piece of land is no easy task. Hiring the right ranch manager isn’t either. But landowners can make the hiring process a smooth one by considering several important questions before hiring a ranch manager. The pros who help landowners connect with the right managers say that owners need to first determine the purpose of their properties. Read more

Information on easements

For most landowners, easements on their property are about as welcome as the annual tax assessment. Unfortunately, both property taxes and easements - the limited legal right one individual or entity has to use another’s real property - are fundamental evils of owning land. Of course, not all easements are created equal. Read more

West Texas - A Seller’s Market

More than 260,000 square miles make up Texas, providing a diverse and constantly changing landscape. The real estate market in the Lone Star State is equally diverse. Land prices in South Texas have risen in recent years as hunters flock to the area scooping up property in the name of sport. Read more

Tax Rules on Easements

With the increase in sale of easements for wind power or for recreational use, it is important to examine some of the rules and history of cases involving easements.

Editors Note: The following story appeared in the December 2006 issue of Farm and Ranch Tax Letter. For more information on Farm and Ranch Tax Letter see the end of the story.

The general rule concerning the treatment of easements may be found in Treasury Regulation
Section 1.61-6 (a) which states as follows:

The purchase price of an easement cannot be depreciated or amortized because an easement does not have a definite useful life.
“When a part of a larger property is sold, the cost or other basis of the entire property shall be equitably apportioned among the several parts. The realized gain or sustained loss on the part of the entire property sold is the difference between the selling price and the cost or other basis allocated to each part. The sale of each part is treated as a separate transaction, and the gain or loss shall be computed separately on each part. Therefore, gain or loss shall be determined at the time of sale of each part and not deferred until the disposal of the entire property has been disposed of.”

When there is a sale of an easement, there are two methods of allocating basis:

-The actual portion of the property affected by the easement.

-The rights created by the easement and the rest of the rights in the property.

If title to the land is retained, the payment for a permanent easement is applied against the basis of the land affected by the easement. If the payment exceeds the basis in the property, a taxable gain will be realized. However, Revenue Ruling 72-255 states that the entire basis in the property cannot be offset against the easement sale unless the entire tract is affected.

So, for example, Sam Farmer grants an easement that involves 2 acres of a 40-acre tract to an electrical utility company for $8,000. Sam purchased the entire 40-acre tract for $4,000 in 1952. Since only 2 acres of the tract were involved, the sale of the easement would essentially be the sale of the 2 acre tract. So, his basis for the purpose of calculating gain would be $ 200 ($4,000 purchase divided by the 40 acres in the tract times the 2 acres affected by the easement). Sam would recognize a $ 7,800 taxable gain to be reported in Part I, Form 4797 assuming the utility company.

Other Easement Issues:
The purchase price of an easement cannot be depreciated or amortized because an easement does not have a definite useful life. However, if the easement sold is only for a specific number of years, a deduction for amortization may be claimed by the individual purchasing the easement
Another type of basis allocation is between the rights retained by the taxpayer and the easement rights that are sold. This allocation can create a problem unless the easement covers the entire tract that holds the easement. Often an easement, such as a conservation easement, covers the entire property.

Two separate revenue rulings govern the allocation of cost basis:

Revenue Ruling 77-413 indicates that the basis in the property in question must be allocated between the interest sold and the interest retained based on the irrespective fair market value compared with the fair market value of the entire property.

Revenue Ruling 77-414 states that if it is impossible to allocate the basis between the interest that is sold and the bas is that is retained, then an amount received for the easement can be used to reduce the basis in the entire property.

More:

The Farm and Ranch Tax Letter is published monthly at a subscription rate of $49 per year. For subscription information or to receive one free copy contact frmandranchtaxletter@earthlink.net or send your adress to Ag Executive Inc., 115 East Twyman, Bushnell, IL 61422.

Note: As with all tax information, contact a qualified tax representative for more information.

Hot Markets in the Rocky Mountains

Open ranges, snow capped peaks, and beautiful views embody what many seek when searching for their first piece of property. One need look no further than the West when searching for this ideal piece of land.

The Rocky Mountain area continues to be a prime location for landowners seeking convenience and amenity in their purchase. John Pierce of Hall & Hall Ranch Sales says many looking to move to the Rockies do so because of the traditional resort ski areas.

Read more

Hunting leases offer chances at big profits

Hunting and fishing are not only popular pastimes, but they also capture profitable returns for land investors who own happy hunting grounds. Steady, substantial income is generated each year – and in many cases, all year ‘round – by those who know how to manage and develop their fishing and hunting leases. Read more

Idaho Considers Landowner Tax Credits

Farmers, ranchers, conservationists and lawmakers are working together to bring about a conservation tax credit program in Idaho for 2008. Read more

How to find 100 acres and a river

When it came time to find a piece of property in Montana, Tom Brokaw was a man with a simple request: 100 acres and a river. An avid fisherman and upland bird hunter, he wanted a property where both his rural hobbies could be enjoyed. If you look long enough, chances are you can find exactly what you’re looking for. Read more

« Previous Page — Next Page »