In reply to Mas89 And if the tract is held by different entities consolidate the ownership as the damages and reduction of value only apply to the parcel ownership that's being diminished.

Charles McFarland and Mark Merrill are who weve used and have been very impressed.

Barron Adler was a total disaster and I would avoid like the plague. They almost totally ****ed us on the condemnation and easement and had we not switched to Charles we would've been totally hosed.

They have been great from easement negotiations to condemnation

And to everyone saying congrats on the coin, I'd 1000% rather have them not here than collect 1c from them.

You typically see three components, the permanent easement, temporary easement or working space easement, and damages. Sometimes you get paid for crop damage if you have it in hay production or another crop. You can, if you are experienced with it all, talk the landman into certain allocations. Will explain why some do so later.

In no particular order, the payment you get for crop damage is ordinary income from whatever the crop was or would have been. The temporary easement or working easement would be ordinary income, most report it like rent. The permanent easement that you got the $1,800 a rod for (for example), is capital gain. You measure the square footage in the easement and then allocate your cost basis for the tract they are crossing to what you "sold" in the permanent easement. But it generally isn't much. If the easement is 30' wide and 1,650' long, you will have gotten $180,000 for the permanent easement part (assuming $1,800 a rod, but someone can check my math.) However, that is just over an acre, so if you paid $5,000 an acre for the place, there isn't much of a deduction to go against the $180,000. lol, first world problem I guess!

Finally, the part where there is a lot of differences in opinion, the "damages" portion of the payment. Cousin Billy Bob will tell you have the landman assign most of the payment to damages, because it is tax free. He will tell you if your tract has a basis of $500,000 and you get $120,000 in "damages" that you can reduce the basis IN THE ENTIRE TRACT by this amount, and owe no tax (leaving the basis at $380,000; $500,000 less $120,000). Even some landmen will tell you this, hoping to get the skids greased and you to agree to the deal. I think that is incorrect. Language I have found says that you can reduce basis in the "affected area" of the tract. Now, if your tract was 40' wide and 10,000' long and a pipeline went down the middle of it, I think you could take the position that the entire tract was affected (30' easement down the center of a 40' tract of land). However, if you owned the entire state of Texas, a pipeline going down the border along the Rio Grande really has no impact on the part of the land along the Red River, or around Dallas, or Houston, or..... But many people and many tax preparers will reduce the basis in the entire tract, but I think that is wrong. The entire tract is not the "affected area" (unless it is 40' like in my example.

Had running "battles" with other CPAs, attorneys, three attorney-CPAs over this over the years. I would not prepare a return in that manner and most of my clients understood the reasoning. New clients wanted to do what their brother or cousin was doing (which was apply the damages to the entire basis) and I told them to go elsewhere. I advised them to get with the CAD and see what sort of reduction in value they would give them for the pipeline crossing the property (seems as if the highest was like 15% to 20%, but I could be wrong, generally it was little or nothing). So, the tract was not worthless, was not ruined. A part of it was impacted, but not very much of it. I used to say in some cases, I would pay the owner the same per acre cost as they had paid for the tract, for the part within the easement. Perhaps double or triple. The reason being is that often another line comes through, and you can get paid again. I had someone that had two lines and a fiber optic cable laid, got around $275,000 each time (was many years ago). That 30' strip was worth more than any of their other acreage by many multiples.

Also, the "damages" were determined prior to any damage occuring. And, in most cases, the property was in better shape after the pipeline was put in than it was before.

Good luck in your search for help on this, I feel certain you will find more than a few who will apply the damages to the entire tract.

If this is your first time, be sure to hire an attorney to guide you through the pipeline process. Someone with experience in pipelines and easements. Be sure the agreement includes a "Most Favored Nations Clause" which can result in you getting more than you agreed to. And watch the language. In the example earlier, the agreement called for "up to three lines" but we didn't agree. Got it changed to a single line. The pipeline company had no plans to put more lines, and since I guess everyone else signed the boilerplate "up to three lines" version of the agreement, they were not too concerned about my friend and client, likely the only landowner who did the change. Then, when the second line came through fairly soon thereafter, they were not joyous. About a year later they wanted to run the fiber optic cable and pay nothing, friend said ain't gonna happen, they offered a pittance, and were not happy at all about having to pay another $275,000.

Also, you can often get some nice road improvements, gates, smaller areas of fencing, etc. as part of the deal, but you just have to ask for it.

There may be some court decisions or revenue rulings or letter rulings that see things different. Haven't done this stuff for around four years now and maybe something changed.

Congrats on the coins though!