A Surprise Realization: The Taxation of Condemnation Proceeds (Law and the Appraiser‪)‬

When faced with a property condemnation, an owner is generally most concerned about securing just compensation from the condemning authority for the loss of the property. This is also true when the owner negotiates the possible sale of property to the condemning authority under the threat of eminent domain. The owner's attention is drawn to developing theories and collecting information, with the help of lawyers and appraisers, all to persuade the condemning authority of the fair amount of compensation. The owner's goal is tangible: the receipt of a check representing the condemnation proceeds. One issue often not considered by a property owner is how the proceeds from a judgment or settlement may be taxed. As peculiar as it might seem, the government can first take your property and then tax the gain realized from the receipt of just compensation. Thus, in addition to preparing strategies for negotiations and litigation to obtain just compensation, a property owner may be prudent to think about what happens to the award or settlement after receiving payment. Depending on the circumstances of the owner, hiring a good tax planner early in the condemnation process may be as important as hiring a good litigator and appraiser.