Selling an Easement on Your Property for a Billboard

Sale of an Easement
You own real estate and someone approaches you with a special request. They would like to buy an easement on your property so that they can put up a billboard for advertisements. The offer is attractive, and you really want to accept, but you are worried about the income tax consequences and contact your tax advisor for guidance.

Is It a Sale of a Real Estate Interest?
This is where a little creative thinking can go a long way. The sale of an easement on your real property is generally considered a partial sale of real estate because you are granting a right of way on your real property to someone else. You need to verify that the sale of an easement is considered to be a sale of a real property interest in the state in which the subject property is located.

1031 Tax Deferred Exchange
It is considered to be a sale of real estate in most states, so the sale of the easement can be structured as a sale of real estate and therefore will qualify for 1031 exchange treatment. You can sell the easement or right of way and set-up a 1031 exchange and buy replacement property in order to defer the payment of your captial gain taxes from the sale of the easement.

You might even want to approach one of these outdoor advertising vendors with the idea. It might be a great strategy to generate some liquid cash that can be reinvested tax deferred through a 1031 exchange into investment property that produces monthly cash flow.

Tax Deferred Investment Solutions
The 1031 exchange does, of course, require that you reinvest in replacement property. You may not wish to buy replacement property through a 1031 exchange when you sell an easement to your real property. In this case, you would need to decide if you wish to cash out and pay the taxes in the current year or look for ways to defer the payment of the taxes over a period of time. Certain taxpayers may wish to look at the Deferred Sales Trust as an alternative strategy to the 1031 exchange transaction.