Property Seizure Could Land Clients a Tax Break

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When is a government offer to take your property a real threat of condemnation, and when is it not?

You may need to bone up on the tax rules to find out the answer. If it’s indeed a real threat of condemnation, you get a nifty tax break.

Let’s assume you sell the property to the government and realize a profit. You’re liable for an immediate tax on that profit in the year you receive the proceeds. And this holds true even if you use the money to acquire similar property.

But here’s where the tax break comes in: The law allows you to delay settling with the IRS on some or all of the gain where the transaction passes muster under Code Section 1033 as an “involuntary conversion.”

To qualify for the deferral, you have to satisfy these requirements: The first stipulation is that your property must be seized, requisitioned or condemned or you must sell it under the “threat or imminence” of seizure, etc. The second is that you must buy — or acquire a controlling interest (80 percent) in a corporation that owns — property that is “similar or related in service or use” to the converted property within IRS replacement deadlines.

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About Julian Block

Julian Block

Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com

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