state taking land

[gman]

The state is taking part of taxpayers property. Widening road for interstate lane. Taxpayer said a 1099 would be issued. It would be reportable on sch D for the proceeds,
but would basis be what property was originally bought for. They are taking about 3 acres from a 20 acre lot. Could it possible just reduce basis and not all be taxable?

[Edsel]

One hint

Gman I think you're probably out of luck on this one.

One helpful thing to remember - highway frontage is nearly always the most valuable part of a parcel of land. You can take the entire 20 acres and allocate a disproportionate value to the 3 acres being taken, and probably not be challenged.

Another idea about deferring the proceeds - you might look in the rules for involuntary conversions and get some relief. However, even if useful, the proceeds for the three acres would probably reduct the basis below zero.

The economic reality is that the gentleman's 20 acres will be value-enhanced by virtue of a new, widened road.

[DaveO]

Is this his personal residence?

And therefore subject to the Sec 121 exclusion? Our local government here will issue 1099 forms for non-employee compensation for ROW purchases. Real fun to deal with down the road.

[Jesse]

And therefore subject to the Sec 121 exclusion? Our local government here will issue 1099 forms for non-employee compensation for ROW purchases. Real fun to deal with down the road.

Good point, but for Section 121 to apply he would still have to sell his residence w/in 2 years. And if not in the same year as the sale of the land he would still have to claim the gain on the sale and go back and amend to apply Section 121 in the year he sells his residence.