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The WV money is coming soon! Question for tax experts: Ceejay74's Personal Finance Blog
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The WV money is coming soon! Question for tax experts

June 9th, 2015 at 04:23 pm

My dad called yesterday to say that he'd received the documents, and that the checks were cut. He made the energy guy read the amounts to him over the phone so he could assure us it was the full amount we were expecting. Smile

This morning he emailed to say that the signed, notarized forms were in the mail to the energy company. As soon as they receive it they'll send out the checks.

This possibility has been looming over me for so long (well over a year) that I find it hard to believe it's finally going to happen!

I emailed my tax guy to get his take on how much to send to the IRS. I did a little calculator a while ago and came up with $20,000. I also saw on some tax advice website that income over my and NT's regular income would be taxed at the 28% rate (so $22,400), and the MN website says that bracket is 7.05% ($5,640). So if I don't hear back from the guy, should I just send the IRS $22K and MN $5600?

18 Responses to “The WV money is coming soon! Question for tax experts”

  1. AnotherReader Says:

    I'm confused here. Do you own this property? If your dad owns it, is selling it, and is gifting you a share of the proceeds, you don't owe anything. It's not income to you. Your father likely owes capital gains tax and he would have to file a gift tax return, but he would pay no gift tax.

    If you own a share in the property, how and when did you acquire it? If your dad gifted it to you, you may have a capital gain tax to pay.

    You should talk to your CPA before you write any checks.

  2. ceejay74 Says:

    The way I understand it, the profit is coming directly to each of us. We signed W-9s or whatever at the beginning of the process. I asked my dad for clarification, but it does seem like we each owe taxes on our share.

  3. buckybadger Says:

    AR makes a good point. I thought this was his land? If it is, this is a gift.

    If this *is* a gift, he can get around the yearly gift limit by dividing it up into $14k chunks. I don't know what the total is, but he could write a check to all three of your for $14k each, and your mom could write one for $14k. That gets you to $84k without having to deal with gift exemptions. Couple probably write checks to the kids, too.

    (I'm sorry to say that I can't remember if you've ever mentioned your mom - if she has passed or they are not together, please accept my apologies.)

  4. buckybadger Says:

    I'd double and triple check. It's worth it to be absolutely sure. I'm not sure what kind of arrangement there would be.

    Did you consider yourself to be an owner of this property before all this happened?

  5. creditcardfree Says:

    I would wait until you hear from your tax person before doing anything. If he doesn't respond in a timely manner, maybe another tax person would assist. Very exciting that this cash is coming your way!

  6. doingitallwrong Says:

    Looking back, it appears as if the arrangement was that your dad was gifting you each a portion of the right-of-way rights to the property, and you are each selling those rights to the gas company. Any profit you make will be taxable to you -- but it shouldn't be 100% profit. You will get to use your share of the cost basis of the property when calculating your gain. For example, say your dad bought the property for $100,000 and you were gifted 25% of the rights. Your cost basis is $25,000. If you then sell the right-of-way to the gas company and they pay you $80,000 your profit is $55,000, and that amount is taxed as a capital gain. (If your dad's basis is less than the fair market value of the land on the date he gifted it to you, there's a different calculation, but I'm going to assume the land has appreciated in value!)

    You might want to talk with an attorney who specializes in land right-of-way issues (although I think maybe you said your brother was dealing with one?) just to be sure. Also, you had mentioned that possibly up to 50% of the sale price would be for damage to the land, which might be treated differently than a capital gain. Also, if you're retaining legal ownership of the land, you'll need to adjust the basis when/if you sell the actual land in the future.

    Worst case scenario, the entire $80K (or whatever) is taxable -- but it is taxable as as capital gain, not as ordinary income. So assuming you and NT are making less than $400K per year combined, the profit would only be taxed at 15%.

  7. AnotherReader Says:

    A W-9 is simply a request for a taxpayer identification number. It has nothing to do with the proceeds being taxable. Who owns the property? That person or entity is selling a partial interest in the property, the easement, to another party. That transaction is separate from the funds coming to you, if you are not an owner of the property.

    In your shoes, I would call your father to ask him what is happening here. Then I would talk to the CPA BEFORE I did anything else.

  8. ceejay74 Says:

    buckybadger, no worries. My mom is alive and they've been together for 60-odd years. She just doesn't do much of the financial stuff directly. Smile

  9. ceejay74 Says:

    I'll wait to see what my tax guy says. Also, my multitalented downstairs neighbor is a real estate lawyer, so he might know something about the tax side of things.

    Thanks for all your input, everyone!

  10. AnotherReader Says:

    If the scenario is as DIAW describes, my understanding is the same. The tricky part is valuing the easement and the remainder for tax purposes. Your neighbor might have some ideas on that.

  11. FrugalTexan75 Says:

    Great news!

  12. Looking Forward Says:

    Very excellent news! Big Grin

  13. bluesfemme Says:

    So excited that because of all your hard work for so many years that this money doesn't have to be used on credit card/consolidation loan debt for items that have long gone. Awesome!

  14. MonkeyMama Says:

    I'd check with dad and CPA. It's feasible that this is ordinary income and that this is precisely why your dad structured it this way. Though all of the advice is fine general advice it could be absolutely useless in this specific situation.

  15. CB in the City Says:

    No tax advice! I'm just glad your money is arriving!

  16. ceejay74 Says:

    Found this on a site about pipeline right-of-ways: "If the easement is temporary the income received is treated as ordinary income. If, on the other hand, the easement is perpetual the income is taxed as capital gains income." I'll have to look over the papers when I get home and find out which it is; I never thought about it.

  17. ceejay74 Says:

    "Sole, exclusive and irrevocable." Sounds perpetual to me. Still, just to be safe, I'll set aside enough money to pay ordinary income tax on the money, and wait to see what my tax guy thinks.

  18. MonkeyMama Says:

    P.S. You might owe taxes in WV too. Just another question to bring up.

    P.S.S. How exciting!! Tax or no tax, it's exciting for this to come to fruition.

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