I ask also, is it possible to have a perpetual easement on an entire property and would that, like the perpetual lease, be treated as a sale? With a deductible loss?
Yes, yes and yes.
The Pub that Keiser cites in Post #36 has it right:
If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property.
As to this comment:
If so, why no deductible loss on the perpetual easement in my example?
Let’s back up. I think we need to clarify something here and also clarify some of the rules we’re trying to create. The something we need to clarify is the nature of the easement. Some key words here, including within the Pub reference above, are “beneficial interest” and whether or not we retain that.
What comes to mind here is our house that sits on a street. There is a land-locked lot behind our house that we also own. If we want to sell that lot so someone can build a house on it (or maybe we build a spec home) we’re gonna need to provide access to that back lot to whoever buys it. One way is to draw up an easement, so that the buyer of the lot can go from the main street, through the edge of our property to get to his. It seems to me that we could use that access even though there’s an easement on it. Now, if the state comes along and says they want an easement so they can build a highway through the side of our yard, well, we can’t really throw the ball with Junior there anymore. No more beneficial interest. In that case, I’m thinking we could take a loss. See Rev Rul 72-255.
Now, as to clarifying the rules, see if you agree:
1. If we grant a non-perpetual easement, it’s a lease.
2. If we grant a perpetual easement, and retain a beneficial interest in the portion so granted, no “sale.” We offset proceeds against basis. If proceeds exceeds basis, we have a gain. We might say we have a transaction that is tantamount to a sale, but for gain recognition purposes only. This is the S-corp distribution in excess of basis type of situation, wherein we retain an interest in our stock.
3. If we grant a perpetual easement, and do not retain a beneficial interest in the portion so granted, we have what is tantamount to a sale for both gain and loss recognition purposes. Note that a “beneficial interest” would not include bare naked title alone. The gist here is that if we grant an easement that causes our property to become worthless to us, we have a closed transaction for gain/loss realization purposes (and recognition purposes as well, assuming some deferral provision doesn’t apply).
There is a relatively new case, from 1928 (the earth is like 4 billion years old, you know), that said this:
Under the provisions of this instrument it is plain that about the only thing or interest remaining in the petitioner is the bare legal title and that this is of no practical or market value. According to the evidence and findings of fact, the petitioner has been deprived of all beneficial interest in the land, and it is useless for farming or grazing purposes. Under such circumstances, many courts hold that the granting of such an easement is tantamount to a sale of the fee. We have been cited to no case in Texas passing upon this question, but we find the general rule stated by the following authorities and text writers. H. L. SCALES., 10 BTA 1024 Are we getting closer to understanding all this easement stuff? It’s not so “easy” now, is it…
Perhaps we need to re-read Post #36 in full and see if our set of rules aligns with the Pub.