Eminent Domain exempt from Capital Gains?

[AZ-Tax]

My client is being offered a price by the City to sell part of their property so the City can widen a road. My client told me that one of the project negotiators told them in the case of a "forced sale" (I believe the correct term is " Eminent domain") any gain would not be subject to capital gains.

Do you think this Project Negotiator was referring to a 1033 exchange opposed to a cash sale?

[AZ-Tax]

Forgot to include....

In the haste of writing my earlier thread, it dawned on me my client owned their personal residence for 10 years so I would have to think it should fall under the "home sale exclusion" but does it matter when only a portion of the personal residence (part of the lot the residence house sits on) is being sold oppose to the whole personal residence including 100% of the lot being sold?

[veritas]

Hereis a ink

to previous discussion.

http://www.thetaxbook.com/forums/showthread.php?t=7847&highlight=eminent

Also, welcome to the board.

[OtisMozzetti]

Severage Damages Reduce Basis of Remaining Property

This would be severance damages, where the basis of the remaining property is reduced by the amount paid for the portion of the property "condemned" by the authority exercising the eminent domain. Assuming that the basis did not go below zero, all that happened is that the homeowner's basis in the property became smaller.

[okie1tax]

I think you want to read Pub 544 and verify what your client received, then determine how much is "Severence". If it isn't all severence, then your client could very well have reportable gain.