Air Space Easement

[islandnomadgirl]

and I did use the phrase they wanted to purchase air space which was the wrong word choices.

 

[NIV]

The OP stated that the Navy was paying a specific amount per acre for the entire acreage. That would tend to indicate that the Navy wishes to use all of it. If its an easement, its merely going to reduce the basis in the property and be non-taxable. It does not appear to be a sale of the airspace at all. The OP specifically used the term "easement".

I guess I'm not sure how reducing the basis means it is "non-taxable", but, if that is what you meant, I don't have a problem with it. The issue would be more important with a conservation easement and deductions.

One can sell an easement so I don't see your distinction here. We are assuming there is some sale of an interest in real property. The issue has to do with the completeness of the rights that are transferred. Is the OP ever going to be able to fly in that air space in the future? Maybe put up a silo 20 years down the line?

 

[islandnomadgirl]

I guess I'm not sure how reducing the basis means it is "non-taxable", but, if that is what you meant, I don't have a problem with it. The issue would be more important with a conservation easement and deductions.

One can sell an easement so I don't see your distinction here. We are assuming there is some sale of an interest in real property. The issue has to do with the completeness of the rights that are transferred. Is the OP ever going to be able to fly in that air space in the future? Maybe put up a silo 20 years down the line?

No, I can't. There are specifics laid out on what can and can't be done and as I am right now, I am perfectly fine with the restrictions.

 

[islandnomadgirl]

I just sent an email to the city's legal counsel that was listed in the easement as the Grantee contact.

Figured it couldn't hurt to see what she has to say.

 

[islandnomadgirl]

Kinda talking to myself here, but I'm trying to make sense of it all. I did look back over the easement and it does list it as "perpetuity" so that kinda changes the taxes...I think. I found this:

"However, when you sell a perpetual easement, the permanency of the purchaser's rights in the land warrants tax treatment as a property sale rather than a lease. Since property sales are subject to the capital gains rules, selling a perpetual easement can save you a significant amount of income tax as a result of the lower tax rates on long-term capital gains."

If it was a lease or note as being for only 40 years or less, then it has to be treated as income.

I know I'm totally over thinking this...but just wanna feel like I kinda know what ground I have.

 

[LdiJ]

Kinda talking to myself here, but I'm trying to make sense of it all. I did look back over the easement and it does list it as "perpetuity" so that kinda changes the taxes...I think. I found this:

"However, when you sell a perpetual easement, the permanency of the purchaser's rights in the land warrants tax treatment as a property sale rather than a lease. Since property sales are subject to the capital gains rules, selling a perpetual easement can save you a significant amount of income tax as a result of the lower tax rates on long-term capital gains."

If it was a lease or note as being for only 40 years or less, then it has to be treated as income.

I know I'm totally over thinking this...but just wanna feel like I kinda know what ground I have.

I would still call it as non-taxable, as compensation for the lowered value of the property. However, do feel free to consult with a local tax professional.

 

[NIV]

I would still call it as non-taxable, as compensation for the lowered value of the property. However, do feel free to consult with a local tax professional.

It is a real estate asset. It has been sold.

Rev. Rul. 71-286

Accordingly, in the instant case, the air rights over real property are considered “interests in real
property” within the meaning of section 856(c)(6)(C) of the Code and “real estate assets” within the
meaning of sections 856(c)(5)(A) and 856(c)(6)(B) of the Code. Therefore any gain from the sale or
disposition of the air rights is gain from the sale or other disposition of an interest in real property within
the meaning of section 856(c)(2)(D) of the Code, and any income derived from rental of the air rights is
gross income derived from an interest in real property within the meaning of Sections 856(c)(2)(C) and
856(c)(3)(A) of the Code.

 

[LdiJ]

It is a real estate asset. It has been sold.

Rev. Rul. 71-286

We do not agree. The Navy is paying for an easement as compensation for the loss in value of the property, in my opinion. In my opinion they are not "buying" anything they couldn't already use for free. You insist its a sale, I insist its compensation, I suggest that the OP consult a local real estate attorney and tax professional.

 

[NIV]

We do not agree. The Navy is paying for an easement as compensation for the loss in value of the property, in my opinion. In my opinion they are not "buying" anything they couldn't already use for free. You insist its a sale, I insist its compensation, I suggest that the OP consult a local real estate attorney and tax professional.

If you insist it is different from the revenue ruling, you might distinguish it in some way. What was the Rev. Rul. I mentioned talking about?

The term air
rights as defined by the trust means the long-term leasehold or fee simple ownership of the space above
the ground that a landowner can occupy or use in connection with the land, plus necessary easements
on the surface for support of structures erected in such air space. The interests in air space are
described by metes and bounds and normally entitled the lessee or owner thereof to free and
unrestricted use of the air space subject to zoning laws, non-interference with structures constructed
upon the land surface, easements and restrictions of records, and the like.

As to "use for free", 49 U.S.C. §40103 has to do with navigable airspace. Private ownership is retained below the level of navigable airspace. (Maybe FlyingRon can give more guidance.)

 

[Zigner]

If you insist it is different from the revenue ruling, you might distinguish it in some way. What was the Rev. Rul. I mentioned talking about?

As to "use for free", 49 U.S.C. §40103 has to do with navigable airspace. Private ownership is retained below the level of navigable airspace. (Maybe FlyingRon can give more guidance.)

Based on the OP's description and video, I would say that the "navigable airspace" in that area may extend to the surface.

 

[NIV]

Based on the OP's description and video, I would say that the "navigable airspace" in that area may extend to the surface.

Take off and landing zones can be a part of what "navigable airspace" means so I agree that is possible. Supreme court cases from long ago denied the claiming of the airspace was a "taking" under the Constitution requiring compensation. I bet the current program(s) are not to buy what the federal government already owns by those decisions.

 

[islandnomadgirl]

Ok, I found this excerpt in a "Your federal Income Tax for Individuals" book online:

in this chapter If you grant an easement of air rights over your property or a part of your property the tax treatment is determined on the basis of the beneficial interest given up and the beneficial interest you retain The part of the easement which deprives you of all beneficial interest in a portion of the land is considered a sale of that portion of the land and your gain or loss is subject to the rules discussed in this chapter Thus the tax on gain may be postponed by acquiring replacement property within the replacement period However that part of the consideration received for granting the easement of air rights over the portion of land where you retain beneficial interest is used to reduce the cost or other basis of this portion of land and any excess payment over basis is taxable gain Any recognized gain where beneficial interest in the property is retained is also considered as having been realized in connection with an involuntary conversion but since property similar or related in service or use air rights will not ordinarily be acquired as replacement property there is no postponement of tax on the gain

This is the other thing about this easement - it's not just about them being able to fly over my property - I will not be allowed - or anyone after me, to subdivide it, have any additional dewellings, more than 200 animals, etc. The main purpose of them doing this is two ensure they will have nothing hindering them flying, including us selling out to a builder etc. Also, to circumvent any future legalities in suing for the noise etc.

It WILL diminish the value of my property in the long run...

And I promise, I do plan to seek advice from a Real Estate Attorney as soon as I hear of their land value assessment offer.