An easement is a legal device that a property owner can use to convey an interest in his land to another person, business or organization without selling the property or forfieting his orginial interest. This device allows the recipient to use a specified parcel of property for certain purposes that are set by the landowner. For example, a homeowner may grant an easement to the local power company for the purpose of installing power lines on their property. In many cases, the recipeint of the easement will pay the landowner for the ability to use the property. Ordinary landlowners will be required to pay taxes on easement payments; however, certain non-profit organizations may be exempt.
Section 61 of the Internal Revenue Code (IRC) defines gross income as "all income from whatever source derived, including...gains derived from dealings in property." Section 63 of the IRC mandates that all gross income is subject to federal taxation. Therefore, unless the property owner is entitled to a tax exemption under the law, any amounts that he or she incurs as a result of an easement will be considered taxable income under the federal law.
State Tax Requirements
Most states have adopted the Internal Revenue Service's definition of "taxable income". For example, in Pennsylvania, taxable income is defined as "federal taxable income before net operating loss deductions and special deductions." Therefore, any amount that is taxable at the federal level will also be subject to state taxes including amounts earned through a property easement arrangement.
Charitable organizations or other groups organized pursuant to Section 501(c)(3) of the Internal Revenue Code are not required to pay federal income tax if they achieve and maintain tax-exempt status. Therefore, an exempt organization that grants an easement to another in exchange for payment may not be required to pay income tax on those payments.
Responsibility for Property Taxes
Many state and local governments levy property taxes against home and landowners. When a landlowner issues an easement or a "right-of-way" to a third party, he retains ownership of the land. Since the recipient of the easement is merely paying for the ability to use the property and not the ability to take title to the property, the responsibility for the payment of property taxes on the parcel of land subject to the easement remains with the landowner.
- Central Minnesota Municipal Power Authority
- U.S. Code (IRC) Title 26, Subtitle A, Chapter 1, Subchapter B, Part I, Section 63
- U.S. Code (IRC) Title 26, Subtitle A, Chapter 1, Subchapter B, Part I, Section 61
- Pennsylvania Code, Section 153.11: Tax Base
- City of Colonial Heights Department of Public Works. "Easements - What Is an Easement?," Page 2. Accessed March 11, 2020.
- Henderson County North Carolina. "Subdivision: Right-of-Way Frequently Asked Questions." Accessed March 11, 2020.
- Majr Resources. "What Is the Difference Between Easement & Right of Way?" Accessed March 11, 2020.
- Utah Department of Commerce. "Easements." Select "Is an Easement a Property Right?" Accessed March 11, 2020.
- Expert Law. "What Is an Easement - Easement Rights and Duties." Accessed March 11, 2020.
- Trulia. "Easements: Know Your Property Rights." Accessed March 11, 2020.
- New York State Attorney General. "FAQs About Real Estate." Accessed March 11, 2020.
- Brewer Offord & Pedersen LLP. "What Is This “Easement” Thing In My Preliminary Report?" Accessed March 11, 2020.
- California Department of Insurance. "Title Insurance - Introduction." Accessed March 11, 2020.
Krystal Wascher has been writing online content since 2008. She received her Bachelor of Arts in political science and philosophy from Thiel College and a Juris Doctor from Duquesne University School of Law. She was admitted to the Pennsylvania Bar in 2009.