Katherine Contreras of the Nossaman eminent domain firm in California has provided an up-to-date analysis of the tax effects created by condemnation gain or loss.
The Nossaman firm is an extremely active owner’s side eminent domain firm.
The refresher provided by Ms. Contreras offers an outstanding initial analysis. One should still meet with a tax advisor for the specific situation, but this article offers an outstanding analysis which will be generally applicable.
“Most of us are at least vaguely familiar with the tax on gains from the sale of property. Many of us know that when property is sold voluntarily and the funds re-invested, the gain may be deferred under Internal Revenue Code section 1031. What is sometimes overlooked is the taxability of gains when property is sold involuntarily, i.e., condemned. As we posted several years ago, Internal Revenue Code section 1033 contemplates just such a situation, and provides some advantages over a section 1031 exchange: An owner has more time to re-invest and may actually hold the proceeds pending that investment – no intermediary needed. (Unlike some other Code provisions, sections 1031 and 1033 do not eliminate gain; rather, they defer gain by allowing the taxpayer to move “built-in” gain from an old property to a new property.)