Question on deduction for eminent domain - Spidell

Question on deduction for eminent domain

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Message Board Question on deduction for eminent domain

  • This topic has 1 reply, 2 voices, and was last updated 6 months ago by David Ellis.
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    • #248463

      Hi everyone,

      The government has acquired my client’s land through eminent domain but not the building portion. The government is planning to rent the building portion for 3 years. However the government is asking for the client to demolish the building. Can my client write off the building?


    • #249035
      David Ellis

      Assuming that  the  property  was used for the production of income, or  held  for  investment…..and  assuming  the  client has  some  remaining  basis  in  the  property,  he  would  have a  loss under the  involuntary  conversion rules  if the  proceeds received  for the  property  were less than  his  basis. There might  be  an issue  as to the exact timing of the  loss, for  example does  he  take the loss  at the time the building  is  demolished, or at the time he is denied  his  desired  use  of the property, or  at the time the government put the Eminent Domain stamp on it? This  actually sounds  like the makings of  a good tax court case.   Until that  time (whenever it  us) he would  have have  rental income  from the building based on the facts  presented.    You  might  want  to  take  a look  at the  Involuntary  Conversion rules and  tax court cases for  the  particulars. You might  also want  to  consider  asking  IRS  for  a Private Letter Ruling, but these can be  costly.  Also, remember that if the property was used  in  a trade or business….any loss would  be  ordinary.

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