Eminent Domain Report

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 ...

A few months ago, I had a property owner call me and explain he had recently sold his property to a utility company under threat of eminent domain.  He took the sale proceeds and invested the money in a comparable replacement property.  When he applied to transfer his Proposition 13 base year value to the replacement property, the County assessor denied his request.  The assessor explained that because the sale under threat of eminent domain was not to a public entity, it did not fall within the exception that allows for a transfer of the base year value.

I was a bit surprised by the assessor's ...

Over the weekend, someone posted a comment on an earlier piece involving the City of Vista's Efforts to Assemble an Auto Mall.  The comment referred to potential tax advantages to owners facing condemnation, and was probably more timely than the person commenting realized.  Here is the main point of the comment:

I have read that Owners forced to sell property though eminent domain have tax advantages on any gain as opposed to if they sell voluntarily.

The comment refers to Internal Revenue Code Section 1033, which provides tax deferral for "involuntary conversions" of ...