J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Condemnations and Threats of Condemnation

The government can take your property for public use if it compensates you for your loss. The process by which the government exercises its right of eminent domain to take your property for public use is called condemnation. In a sense, you are being forced to sell your property at a price essentially fixed by the government. You can usually negotiate a price; sometimes you are forced to seek a court action and have the court fix the price paid to you. Typically, an owner is paid cash or receives other property upon condemnation of property.

Sometimes the probability of a condemnation becomes known through reports in a newspaper or other news medium or proposals at a town council meeting. For example, there may be talk of a new road or the widening of an existing road that will affect your property. If you do not voluntarily sell your property, the government will simply go through the process of condemnation.

Where there is a condemnation, you may also voluntarily sell other property. If the other property has an economic relationship to the condemned property, the voluntary sale can be treated as a condemnation.

Not every condemnation qualifies for special tax treatment. When property is condemned because it is unsafe, this is not a taking of property for public use. It is simply a limitation on the use of the property by you.

For tax purposes, a condemnation or threat of condemnation of your business property is treated as a sale or ...