[CPA Dex]

Will someone explain why this is not a taxable event?

In 2003, Terry purchased land for $150,000. In 2010, Terry received $5,000 from a local cable television company in exchange for Terry allowing the company to run an underground cable across Terry’s property. Terry is not required to recognize income from receiving the $5,000 because it was a return of his capital invested in the land.

[surfer4life949]

Think of this as your “interest” in the land. So terry bought the $150,000 land as a capital investment and has full interest in it (meaning they can do whatever the eff they want with it). But the cable company wants to have an “interest” in the land as well (Ie; have a portion of it for their control to run the cable through). In essence, Terry is giving up some of this “interest” and thus only has control over $145,000 worth of the land. This isn't really “income” and shouldn't be taxed because the whole $150,000 worth of land is still there, except now it's controlled $5K worth by the cable company and $145K worth to you.

If you were using the land investment to create additional income (like growing pot for example) and sold it, THIS would be taxable income.

Hopefully this makes sense

B-85 OCT 2012
A-84 NOV 2012
R-90 JAN 2013
F-89 AUG 2012
Ethics-92 (3rd try)

I am DONE BABY!!!
Used Roger 2012 + Wiley + NINJA Notes

[Author]

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