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Pennsylvania Eminent Domain Blog

Deferring Taxes On Eminent Domain Payments

April 15th, 2018 | by Mike Faherty


Eminent domain lawyers work hard to secure just compensation for property owners. However, in gain situations, the IRS and most states want their share, too. Fortunately, solutions are available that seek to soften or eliminate the tax bite. When property is involuntarily converted, I.R.C. §1033 provides guidelines to defer capital gains and other taxes. Known as a “1033 exchange”, the code allows for non-recognition status if the proceeds are invested in similar property within 2 years after the close of the first taxable year in which any part of the gain is realized. Similar generally means property that is “similar or related in service or use” to the property so converted, terms that the IRS narrowly defines. Note that this period is extended to 3 years for condemnations of investment property, and more liberal “like-kind” rules apply to replacement property. The longer exchange period provides ample opportunity for tax planning. If properly structured, property owners can complete a valid 1033 exchange, yet still “cash out” a significant portion of their award proceeds tax free. Passive, turn-key options may be available to qualified landowners unable to find suitable replacement property. Lastly, taxes that have been already paid can potentially be refunded via an amended tax return. To learn more about these powerful tax codes, see m/investments/1033-exchanges/ or conference with Catharine Fulmer at (631) 474-1610 Ext. 210. Catharine can also be reached at [email protected]

By Alan N. Lichtenstein
Senior Investment Advisor
Fortitude Investment Group

The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Consult an advisor as investor situations and objectives vary. This information is not intended to indicate suitability for any particular investor, nor to be interpreted as tax or legal advice.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). Fortitude Investment Group is independent of CIS, CAM and CIA.