How Does a Partial Taking Affect My Property Taxes? (Treas. Reg 6 1.10233(a)-2(c)(10)

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The purpose of this post is to discuss how a partial taking of your property may affect your property taxes.

Often, in an eminent domain action, there are at least two types of damages or payment required. First, the government should pay the property owner for the property actually taken.

Second, when the government takes anything less than the entire parcel, the government should also pay the property owner for any damages caused to the property left-over.

These are known as “severance damages.”

When the government takes less than the entire parcel, however, how does that affect your property taxes on the remainder?

The answer, it turns out, may be relatively straightforward with the right advice.

Generally, the net “severance damages” reduce the cost basis of the land retained. (Pioneer Real Estate Co. v. C.I.R. (B.T.A.) 47 B.T.A. 886, 891-892; Rev. Rul. 68-37, 1968-1, C.B. 359.)

In that instance, the main question may be the determination of “net” severance damages.

Net severance damages are calculated by taking the gross award and then removing permitted deductions and offsets.

These permitted offsets to include things like appraisal fees, legal expenses, and other costs spent to achieve the award and any amount withheld by the condemning authority to pay a special assessment, like infrastructure improvements. (Treas. Reg. § 1.10233(a)-2(c)(10); I.R.C. § 1016.)

Obviously, as anyone in this situation will likely have unique issues, they should not rely on this post as tax advice of any kind but instead should seek detailed professional advice specific to their situation.

If you find yourself in this situation, please contact our attorney at Underwood Law Firm, P.C., for an initial consultation.

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