The Accounting Treatment of Easements

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An easement is an arrangement between a property owner and someone who wants to use the property for a particular purpose. An easement transfers rights to a property or a particular part of the property in exchange for a payment, often related to land access, land conservation or a similar matter. Accounting for easements when it comes to taxes and sales depends on the details of the easement contract.

Purchase Price Treatment

Purchase prices for easements depend on the amount for which the easement is granted, based on the contract the parties sign. An easement does not grant anything permanently tangible, only rights and abilities. From an accounting perspective, an easement purchase price cannot be amortized out or depreciated, because it does not count as an asset.

Easement Sale - Property

When an easement is sold, it affects the tax basis of the land according to the easement details. Property purchased for $100,000 can have a permanent easement on a quarter of that property, or $25,000 worth. If the permanent easement is greater than $25,000, any amount over this counts as taxable gain and must be recorded as such.

Deductions and Amortization

If an easement is sold only for a limited time, the party buying the easement might be able to deduct for amortization. This means buyers of the easement can use record their expenses in one entry but apply for deductions based on how the amount would be amortized out over the years of the easement if it was a true asset.

Tax Savings on Property

When a property with an easement on it is sold, the property owner records only the value of the property not affected by a current easement. This means a permanent conservation easement, for example, will actually lower the amount of taxable gain when the house is sold or passed on to a beneficiary. However, many benefits for agricultural land, such as favorable tax status, still apply even if the easement controls the use of that land.

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