@TaxGuyBill "doesn't it just reduce the Basis of the entire property?" 

You're thinking of an easement, which doesn't seem to be the case here.  

The state probably would have done an appraisal, which probably would have started with the value of the entire property.  Then it would have allocated that total value to the piece that was taken -- it might have been worth a lot more per square foot, because of the highway frontage, or a lot less, for that or some other reason.  If the state took 5% of the land but said it 10% of the total value, then apply 10% to the cost basis of the entire parcel.