J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

18.25 Special Assessments and Severance Damages

When only part of a property parcel is condemned for a public improvement, the condemning authority may:

1. Levy a special assessment against the remaining property, claiming that it is benefitted by the improvement. The authority usually deducts the assessment from the condemnation award.

2. Grant an award for severance damages if the condemnation of part of your property causes a loss in value or damage to the remaining property that you keep.

Special assessments reduce the amount of the gross condemnation award. If they exceed the award, the excess is added to the basis of the property. An assessment levied after the award is made may not be deducted from the award.

EXAMPLE

Two acres of a 10-acre tract are condemned for a new highway. The adjusted basis of the land is $30,000, or $3,000 per acre. The condemnation award is $10,500; you incurred expenses of $500 to get the award. The special assessment against the remaining eight acres is $2,500. The net gain on the condemnation is $1,500:

Condemnation award minus your expenses	$10,000
Less:
Basis of two condemned acres	$6,000
Special assessment	2,500	8,500
Net gain	$1,500

When both the condemnation award and severance damages are received, the condemnation is treated as two separate involuntary conversions: (1) A conversion of the condemned land. Here, the condemnation award is applied against the basis of the condemned land to determine ...