Is selling an easement covering 2.75 acres of a 10 acre tract taxable when it renders remaining unsuitable use

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.Is selling an easement covering 2.75 acres of a 10 acre tract taxable when it renders remaining unsuitable use
Yes. It is taxable to the extent of the gain. Since you paid for the land originally, only the gain is taxable. (Even if you inherited the land, it had basis based on the giver's date of death).





Example: You bought 10 acres for $1000. You sold the easement for $900. So your cost of 2.75 acres was $275. The tax is on the gain of $900 minus 275 or $625 profit.





Later, you sell the remaining 7.25 acres for $100. The land costs related to this parcel are $725. So you have a LOSS of $100 minus $725 or a loss of $625. You cannot deduct this loss until this parcel is sold.





If you use TMA's reasoning (which you may), then you would say the basis of the 2.75 acre parcel is the full $1000. So you would have a loss ($900 minus $1000 = loss of $100) on the first sale. But WHEN you sell the remaining parcel of 7.25 acres, you will have no remaining basis, so the ENTIRE amount you get for the remaining parcel is ALL taxable gain. Say you get $200 for that parcel minus $0 remaining basis = $200 taxable gain.





--A Damn Fine Tax Advisor