My client received a letter with his check for his part of a settlement in a case against the United States regarding the invasion of property rights for railroad tracks that were put in place on his property. The property in question has since been abandoned by the railroad and so the United States settled with the property owners and my client received his check, no 1099-Misc. or any other tax form. The attorney's letter stated that the amount included the principal amount for the land value, plus interest with no deduction for attorneys' fees. How much of the settlement distribution should be included as a taxable amount if any?
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Well, the interest is certainly taxable as ordinary income. The rest of it depends on whether he still owns the property, which it does not appear he does. Did he give up his rights to the US Govt? It sounds like a sale under capital gain or loss rules if that is the case. Use attorney letter as your basis for tax treatment. -
I figured that the interest was taxable but when there is no specific amount, what percentage of the whole should be used? I'm thinking the state percentage which in CA is 8% but I'm guessing. As for the property, it is still owned by the taxpayer so there is no capital gains tax as there was no disposition.Comment
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