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Emminent Domain

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Level 2

How and where do I report proceeds from an emminent domain payment, where it was just a small portion of total property.

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Level 11

@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.  

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Level 15

Consider it the sale of "small portion of total property."


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Level 12

@George4Tacks wrote:

Consider it the sale of "small portion of total property."


If I remember correctly, unless you can identify the Basis of that specific piece of property, doesn't it just reduce the Basis of the entire property?  So the current year won't show a gain or loss.

Or am I mixing that up with something else?

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Level 15

IRC 1033 may be a possibility but @Short-timer would need to give us a bit more information. 


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Level 2

It was the sale of the land alongside the highway for expansion.  It was bare land, but it was fenced, the fencing was however moved back onto their new property line.  So no improvements??  Extra twist: They also received "rent" from the state for storage of equipment while construction was occurring.  Just another more to the twist, the property owner sold said property on 01/10/2020 and gave the rent to the new owners (still waiting to see if they gave it to them through escrow or an actual check).  So they have to declare the rent (do we have to go the Sch E route or can we just do a Income not subject to SE?) and then 1099 the new owners?  My next to last return and I'm just so over this.  Thanks for your help, it sounds like it would be clean to be able to "add it to the basis" at the sale.  

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Highlighted
Level 11

@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.  

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