Eminent domain is the process by which a government or entity
has the ability to take private property for public use. Any
property claimed through eminent domain must be fairly compensated.
This triggers a process by which "fair compensation" is
determined. Once this process is complete, there will be an
award to the owner of the property, based on "severance
damages" for either loss in value of a larger parcel of
property that was not acquired, or the value of the portion of the
property that was taken.
For tax purposes, the proceeds from
property acquired through eminent domain (or the receipt of an
award) would be treated no differently from a sale of the property.
Taxable gain (amount by which the proceeds exceed the tax basis of
the property) results when a property is taken by condemnation (or
sold under threat of eminent domain). Tax basis is determined as
the original purchase price, less depreciation, plus any
improvement costs. Taxable gain could be very
