Oregon Tax Consultants Practice Exam

What effect do granted easements on your property have?

1. They increase the property's market value

2. They are treated as a decrease in basis

3. They require tax payments

4. They have no effect on basis

The correct answer is: They are treated as a decrease in basis

Granted easements on your property typically have significant implications for its tax basis. When a property owner grants an easement, they are ceding certain rights associated with that property, which can result in a reduced market value and, therefore, a decrease in the basis of the property. The basis of a property is essentially the amount that an owner has invested in it for tax purposes, and when an easement is granted, it often limits the property's use or diminishes its overall value. This reduction in market value from the easement can translate to a decreased basis, as it reflects the loss of full ownership rights. It's important for property owners to understand this concept, as it can affect potential capital gains when the property is later sold. In contrast, gradual increases in market value would suggest that the easements enhance property worth, which is generally not the case. Tax payments associated with easements depend on local laws and specific conditions, but they usually don't universally require additional tax payments merely due to the presence of an easement. Finally, stating that easements have no effect on basis would overlook the significant impact they can have on a property's value and potential tax implications.