1031 exchange:
IRS1031ExchangeCH1
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Table of Contents
Publication
Form (and Instructions)
See chapter 5 for information about getting publications and forms. The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. An exchange is a transfer of property for other property or services. Sale or lease. Some
agreements that seem to be leases may really be
conditional sales contracts. The intention of the
parties to the agreement can help you distinguish
between a sale and a lease.
There is no test or group of tests to
prove what the parties intended when they made the
agreement. You should consider each agreement based on
its own facts and circumstances. For more information on
leases, see chapter 4 in Publication 535, Business
Expenses.
Cancellation of a lease. Payments received by a
tenant for the cancellation of a lease are treated as an
amount realized from the sale of property. Payments
received by a landlord (lessor) for the cancellation of
a lease are essentially a substitute for rental payments
and are taxed as ordinary income in the year in which
they are received.
Copyright. Payments you receive for
granting the exclusive use of (or right to exploit) a
copyright throughout its life in a particular medium are
treated as received from the sale of property. It does
not matter if the payments are a fixed amount or a
percentage of receipts from the sale, performance,
exhibition, or publication of the copyrighted work, or
an amount based on the number of copies sold,
performances given, or exhibitions made. Nor does it
matter if the payments are made over the same period as
that covering the grantee's use of the copyrighted work.
If the copyright was used in your
trade or business and you held it longer than a year,
the gain or loss may be a section 1231 gain or loss. For
more information, see Section
1231 Gains and Losses in chapter 3.
Easement. The amount received for
granting an easement is subtracted from the basis of the
property. If only a specific part of the entire tract of
property is affected by the easement, only the basis of
that part is reduced by the amount received. If it is
impossible or impractical to separate the basis of the
part of the property on which the easement is granted,
the basis of the whole property is reduced by the amount
received.
Any amount received that is more than
the basis to be reduced is a taxable gain. The
transaction is reported as a sale of property.
If you transfer a perpetual easement
for consideration and do not keep any beneficial
interest in the part of the property affected by the
easement, the transaction will be treated as a sale of
property. However, if you make a qualified conservation
contribution of a restriction or easement granted in
perpetuity, it is treated as a charitable contribution
and not a sale or exchange, even though you keep a
beneficial interest in the property affected by the
easement.
If you grant an easement on your
property (for example, a right-of-way over it) under
condemnation or threat of condemnation, you are
considered to have made a forced sale, even though you
keep the legal title. Although you figure gain or loss
on the easement in the same way as a sale of property,
the gain or loss is treated as a gain or loss from a
condemnation. See Gain or Loss
From Condemnations, later.
Note's maturity date extended.
The extension of a note's maturity date is
not treated as an exchange of an outstanding note for a
new and different note. Also, it is not considered a
closed and completed transaction that would result in a
gain or loss. However, an extension will be treated as a
taxable exchange of the outstanding note for a new and
materially different note if the changes in the terms of
the note are significant. Each case must be determined
by its own facts.
Transfer on death. The
transfer of property to an executor or administrator on
the death of an individual is not a sale or exchange.
Bankruptcy. Generally, a
transfer of property from a debtor to a bankruptcy
estate is not treated as a sale or exchange. For more
information, see The Bankruptcy
Estate in Publication 908.
Gain or loss is usually realized when property is sold or exchanged. A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. A loss is the adjusted basis of the property that is more than the amount you realize. Table 1-1. How To Figure Whether You Have a Gain or Loss
Basis. You must know the basis of
your property to determine whether you have a gain or
loss from its sale or other disposition. The basis of
property you buy is usually its cost. However, if you
acquired the property by gift, inheritance, or in some
way other than buying it, you must use a basis other
than its cost. See Basis Other
Than Cost in Publication 551.
Adjusted basis. The
adjusted basis of property is your original cost or
other basis plus certain additions and minus certain
deductions, such as depreciation and casualty losses.
See Adjusted Basis
in Publication 551. In determining gain or
loss, the costs of transferring property to a new owner,
such as selling expenses, are added to the adjusted
basis of the property.
Amount realized. The
amount you realize from a sale or exchange is the total
of all money you receive plus the fair market value of
all property or services you receive. The amount you
realize also includes any of your liabilities that were
assumed by the buyer and any liabilities to which the
property you transferred is subject, such as real estate
taxes or a mortgage.
If the liabilities relate to an
exchange of multiple properties, see Treatment of liabilities
under Multiple Property
Exchanges, later.
Fair market value. Fair market
value (FMV) is the price at which the property would
change hands between a buyer and a seller when both have
reasonable knowledge of all the necessary facts and
neither has to buy or sell. If parties with adverse
interests place a value on property in an arm's-length
transaction, that is strong evidence of FMV. If there is
a stated price for services, this price is treated as
the FMV unless there is evidence to the contrary.
Example. You used a building in your business that cost you $70,000. You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. You sold the building for $100,000 plus property having an FMV of $20,000. The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. The selling expenses were $4,000. Your gain on the sale is figured as follows.
Amount recognized. Your
gain or loss realized from a sale or exchange of
property is usually a recognized gain or loss for tax
purposes. Recognized gains must be included in gross
income. Recognized losses are deductible from gross
income. However, your gain or loss realized from certain
exchanges of property is not recognized for tax
purposes. See Nontaxable
Exchanges, later. Also, a loss from the sale
or other disposition of property held for personal use
is not deductible, except in the case of a casualty or
theft.
Interest in property.
The amount you realize from the disposition
of a life interest in property, an interest in property
for a set number of years, or an income interest in a
trust is a recognized gain under certain circumstances.
If you received the interest as a gift, inheritance, or
in a transfer from a spouse or former spouse incident to
a divorce, the amount realized is a recognized gain.
Your basis in the property is disregarded. This rule
does not apply if all interests in the property are
disposed of at the same time.
Example 1. Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. You decide to sell your life interest in the farm. The entire amount you receive is a recognized gain. Your basis in the farm is disregarded. Example 2. The facts are the same as in Example 1, except that your brother joins you in selling the farm. The entire interest in the property is sold, so your basis in the farm is not disregarded. Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Canceling a sale of real property. If you sell
real property under a sales contract that allows the
buyer to return the property for a full refund and the
buyer does so, you may not have to recognize gain or
loss on the sale. If the buyer returns the property in
the year of sale, no gain or loss is recognized. This
cancellation of the sale in the same year it occurred
places both you and the buyer in the same positions you
were in before the sale. If the buyer returns the
property in a later tax year, however, you must
recognize gain (or loss, if allowed) in the year of the
sale. When the property is returned in a later year, you
acquire a new basis in the property. That basis is equal
to the amount you pay to the buyer.
If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. You have a gain if the amount realized is more than your adjusted basis in the property. However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Bargain sales to charity. A bargain sale of property
to a charitable organization is partly a sale or
exchange and partly a charitable contribution. If a
charitable deduction for the contribution is allowable,
you must allocate your adjusted basis in the property
between the part sold and the part contributed based on
the fair market value of each. The adjusted basis of the
part sold is figured as follows.
Example. You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Your adjusted basis in the property is $4,000. Your gain on the sale is $1,200, figured as follows.
If you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. You must subtract depreciation you took or could have taken from the basis of the business or rental part. Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Any gain on the personal part of the property is a capital gain. You cannot deduct a loss on the personal part. Example. You sold a condominium for $57,000. You had bought the property 9 years earlier in January for $30,000. You used two-thirds of it as your home and rented out the other third. You claimed depreciation of $3,272 for the rented part during the time you owned the property. You made no improvements to the property. Your selling expenses for the condominium were $3,600. You figure your gain or loss as follows.
You cannot deduct a loss on the sale of property you acquired for use as your home and used as your home until the time of sale. You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Figure the loss you can deduct as follows.
The result in (4) is the loss you can deduct. Example. You changed your main home to rental property 5 years ago. At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. This year, you sold the property for $55,000. You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Although your loss on the sale is $7,380 [($75,000 - $12,620) - $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows.
Gain. If you have a gain
on the sale, you generally must recognize the full
amount of the gain. You figure the gain by subtracting
your adjusted basis from your amount realized, as
described earlier.
You may be able to exclude all or
part of the gain if you owned and lived in the property
as your main home for at least 2 years during the 5-year
period ending on the date of sale. For more information,
see Publication 523.
The abandonment of property is a disposition of property. You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Loss from abandonment of business or investment property is deductible as an ordinary loss, even if the property is a capital asset. The loss is the property's adjusted basis when abandoned. This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. However, if the property is later foreclosed on or repossessed, gain or loss is figured as discussed later. The abandonment loss is deducted in the tax year in which the loss is sustained. You cannot deduct any loss from abandonment of your home or other property held for personal use. Example. Ann abandoned her home that she bought for $200,000. At the time she abandoned the house, her mortgage balance was $185,000. She has a nondeductible loss of $200,000 (the adjusted basis). If the bank later forecloses on the loan or repossesses the house, she will have to figure her gain or loss as discussed later under Foreclosures and Repossessions. Cancellation of debt. If the abandoned property
secures a debt for which you are personally liable and
the debt is canceled, you will realize ordinary income
equal to the canceled debt. This income is separate from
any loss realized from abandonment of the property.
Report income from cancellation of a debt related to a
business or rental activity as business or rental
income. Report income from cancellation of a nonbusiness
debt as other income on Form 1040, line 21.
However, income from cancellation of
debt is not taxed if any of the following conditions
apply.
Forms 1099-A and 1099-C. If your abandoned property
secures a loan and the lender knows the property has
been abandoned, the lender should send you Form 1099-A
showing information you need to figure your loss from
the abandonment. However, if your debt is canceled and
the lender must file Form 1099-C, the lender may include
the information about the abandonment on that form
instead of on Form 1099-A. The lender must file Form
1099-C and send you a copy if the amount of debt
canceled is $600 or more and the lender is a financial
institution, credit union, federal government agency, or
any organization that has a significant trade or
business of lending money. For abandonments of property
and debt cancellations occurring in 2004, these forms
should be sent to you by January 31, 2005.
If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. This is true even if you voluntarily return the property to the lender. You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Buyer's (borrower's) gain or loss.
You figure and report gain or loss from a
foreclosure or repossession in the same way as gain or
loss from a sale or exchange. The gain or loss is the
difference between your adjusted basis in the
transferred property and the amount realized. See Gain or Loss From Sales and
Exchanges, earlier.
You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Amount realized on a nonrecourse
debt. If you are not personally
liable for repaying the debt (nonrecourse debt) secured
by the transferred property, the amount you realize
includes the full debt canceled by the transfer. The
full canceled debt is included even if the fair market
value of the property is less than the canceled debt.
Example 1. Chris bought a new car for $15,000. He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Chris is not personally liable for the loan (nonrecourse), but pledges the new car as security. The credit company repossessed the car because he stopped making loan payments. The balance due after taking into account the payments Chris made was $10,000. The fair market value of the car when repossessed was $9,000. The amount Chris realized on the repossession is $10,000. That is the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). He has a $5,000 nondeductible loss. Example 2. Abena paid $200,000 for her home. She paid $15,000 down and borrowed the remaining $185,000 from a bank. Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. The bank foreclosed on the loan because Abena stopped making payments. When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. The amount Abena realized on the foreclosure is $180,000, the debt canceled by the foreclosure. She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). She has a $5,000 realized gain. Amount realized on a recourse
debt. If you are personally liable
for the debt (recourse debt), the amount realized on the
foreclosure or repossession does not include the
canceled debt that is your income from cancellation of
debt. However, if the fair market value of the
transferred property is less than the canceled debt, the
amount realized includes the canceled debt up to the
fair market value of the property. You are treated as
receiving ordinary income from the canceled debt for the
part of the debt that is more than the fair market
value. See Cancellation of
debt, later.
Example 1. Assume the same facts as in the previous Example 1, except Chris is personally liable for the car loan (recourse debt). In this case, the amount he realizes is $9,000. This is the canceled debt ($10,000) up to the car's fair market value ($9,000). Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). He has a $6,000 nondeductible loss. He also is treated as receiving ordinary income from cancellation of debt. That income is $1,000 ($10,000 - $9,000). This is the part of the canceled debt not included in the amount realized. Example 2. Assume the same facts as in the previous Example 2, except Abena is personally liable for the loan (recourse debt). In this case, the amount she realizes is $170,000. This is the canceled debt ($180,000) up to the fair market value of the house ($170,000). Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). She has a $5,000 nondeductible loss. She also is treated as receiving ordinary income from cancellation of debt. That income is $10,000 ($180,000 - $170,000). This is the part of the canceled debt not included in the amount realized. Seller's (lender's) gain or loss on
repossession. If you finance a buyer's
purchase of property and later acquire an interest in it
through foreclosure or repossession, you may have a gain
or loss on the acquisition. For more information, see
Repossession in
Publication 537.
Table 1-2. Worksheet for Foreclosures and Repossessions (Keep for your records)
Cancellation of debt. If
property that is repossessed or foreclosed on secures a
debt for which you are personally liable (recourse
debt), you generally must report as ordinary income the
amount by which the canceled debt is more than the fair
market value of the property. This income is separate
from any gain or loss realized from the foreclosure or
repossession. Report the income from cancellation of a
debt related to a business or rental activity as
business or rental income. Report the income from
cancellation of a nonbusiness debt as other income on
Form 1040, line 21.
You can
use Table 1-2 to figure your income from cancellation of
debt.
However, income from cancellation of
debt is not taxed if any of the following conditions
apply.
Forms 1099-A and 1099-C. A lender who acquires an
interest in your property in a foreclosure or
repossession should send you Form 1099-A showing the
information you need to figure your gain or loss.
However, if the lender also cancels part of your debt
and must file Form 1099-C, the lender may include the
information about the foreclosure or repossession on
that form instead of on Form 1099-A. The lender must
file Form 1099-C and send you a copy if the amount of
debt canceled is $600 or more and the lender is a
financial institution, credit union, federal government
agency, or any organization that has a significant trade
or business of lending money. For foreclosures or
repossessions occurring in 2004, these forms should be
sent to you by January 31, 2005.
An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Involuntary conversions are also called involuntary exchanges. Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. You report the gain or deduct the loss on your tax return for the year you realize it. (You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft.) However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. You do not report the gain if you receive property that is similar or related in service or use to the converted property. Your basis for the new property is the same as your basis for the converted property. This means that the gain is deferred until a taxable sale or exchange occurs. If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can choose to postpone reporting the gain. This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. If you have a gain or loss from the destruction or theft of property, see Publication 547. A condemnation is the process by which private property is legally taken for public use without the owner's consent. The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. The owner receives a condemnation award (money or property) in exchange for the property taken. A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Example. A local government authorized to acquire land for public parks informed you that it wished to acquire your property. After the local government took action to condemn your property, you went to court to keep it. But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. This is a condemnation of private property for public use. Threat of condemnation.
A threat of condemnation exists if a
representative of a government body or a public official
authorized to acquire property for public use informs
you that the government body or official has decided to
acquire your property. You must have reasonable grounds
to believe that, if you do not sell voluntarily, your
property will be condemned.
The sale of your property to someone
other than the condemning authority will also qualify as
an involuntary conversion, provided you have reasonable
grounds to believe that your property will be condemned.
If the buyer of this property knows at the time of
purchase that it will be condemned and sells it to the
condemning authority, this sale also qualifies as an
involuntary conversion.
Reports of condemnation.
A threat of condemnation exists if you learn
of a decision to acquire your property for public use
through a report in a newspaper or other news medium,
and this report is confirmed by a representative of the
government body or public official involved. You must
have reasonable grounds to believe that they will take
necessary steps to condemn your property if you do not
sell voluntarily. If you relied on oral statements made
by a government representative or public official, the
Internal Revenue Service may ask you to get written
confirmation of the statements.
Related property voluntarily sold.
A voluntary sale of your property may be
treated as a forced sale that qualifies as an
involuntary conversion if the property had a substantial
economic relationship to property of yours that was
condemned. A substantial economic relationship exists if
together the properties were one economic unit. You also
must show that the condemned property could not
reasonably or adequately be replaced. You can choose to
postpone reporting the gain by buying replacement
property. See Postponement of
Gain, later.
If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. You can postpone reporting gain from a condemnation if you buy replacement property. If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. See Postponement of Gain, later. If your net condemnation award is less than your adjusted basis, you have a loss. If your loss is from property you held for personal use, you cannot deduct it. You must report any deductible loss in the tax year it happened. You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Main home condemned. If
you have a gain because your main home is condemned, you
generally can exclude the gain from your income as if
you had sold or exchanged your home. You may be able to
exclude up to $250,000 of the gain (up to $500,000 if
married filing jointly). For information on this
exclusion, see Publication 523. If your gain is more
than you can exclude but you buy replacement property,
you may be able to postpone reporting the rest of the
gain. See Postponement of Gain,
later.
Table 1-3. Worksheet for Condemnations (Keep for your records)
Condemnation award. A
condemnation award is the money you are paid or the
value of other property you receive for your condemned
property. The award is also the amount you are paid for
the sale of your property under threat of condemnation.
Payment of your debts.
Amounts taken out of the award to pay your
debts are considered paid to you. Amounts the government
pays directly to the holder of a mortgage or lien
against your property are part of your award, even if
the debt attaches to the property and is not your
personal liability.
Interest on award.
If the condemning authority pays you
interest for its delay in paying your award, it is not
part of the condemnation award. You must report the
interest separately as ordinary income.
Payments to relocate.
Payments you receive to relocate and replace
housing because you have been displaced from your home,
business, or farm as a result of federal or federally
assisted programs are not part of the condemnation
award. Do not include them in your income. Replacement
housing payments used to buy new property are included
in the property's basis as part of your cost.
Net condemnation award.
A net condemnation award is the total award
you received, or are considered to have received, for
the condemned property minus your expenses of obtaining
the award. If only a part of your property was
condemned, you also must reduce the award by any special
assessment levied against the part of the property you
retain. This is discussed later under Special assessment taken out of
award.
Severance damages. Severance
damages are not part of the award paid for the property
condemned. They are paid to you if part of your property
is condemned and the value of the part you keep is
decreased because of the condemnation.
For example, you may receive
severance damages if your property is subject to
flooding because you sell flowage easement rights (the
condemned property) under threat of condemnation.
Severance damages also may be given to you if, because
part of your property is condemned for a highway, you
must replace fences, dig new wells or ditches, or plant
trees to restore your remaining property to the same
usefulness it had before the condemnation.
The contracting parties should agree
on the specific amount of severance damages in writing.
If this is not done, all proceeds from the condemning
authority are considered awarded for your condemned
property.
You cannot make a completely new
allocation of the total award after the transaction is
completed. However, you can show how much of the award
both parties intended for severance damages. The
severance damages part of the award is determined from
all the facts and circumstances.
Example. You sold part of your property to the state under threat of condemnation. The contract you and the condemning authority signed showed only the total purchase price. It did not specify a fixed sum for severance damages. However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. You may treat this part as severance damages. Treatment of severance
damages. Your net severance damages
are treated as the amount realized from an involuntary
conversion of the remaining part of your property. Use
them to reduce the basis of the remaining property. If
the amount of severance damages is based on damage to a
specific part of the property you kept, reduce the basis
of only that part by the net severance damages.
If your net severance damages are
more than the basis of your retained property, you have
a gain. You may be able to postpone reporting the gain.
See Postponement of Gain,
later.
You can
use Part 1 of Table 1-3 to figure any gain from
severance damages and to refigure the adjusted basis of
the remaining part of your property.
Net severance damages.
To figure your net severance damages, you
first must reduce your severance damages by your
expenses in obtaining the damages. You then reduce them
by any special assessment (described later) levied
against the remaining part of the property and taken out
of the award by the condemning authority. The balance is
your net severance damages.
Expenses of obtaining a condemnation
award and severance damages. Subtract
the expenses of obtaining a condemnation award, such as
legal, engineering, and appraisal fees, from the total
award. Also, subtract the expenses of obtaining
severance damages, that may include similar expenses,
from the severance damages paid to you. If you cannot
determine which part of your expenses is for each part
of the condemnation proceeds, you must make a
proportionate allocation.
Example. You receive a condemnation award and severance damages. One-fourth of the total was designated as severance damages in your agreement with the condemning authority. You had legal expenses for the entire condemnation proceeding. You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Special assessment taken out of
award. When only part of your property
is condemned, a special assessment levied against the
remaining property may be taken out of your condemnation
award. An assessment may be levied if the remaining part
of your property benefited by the improvement resulting
from the condemnation. Examples of improvements that may
cause a special assessment are widening a street and
installing a sewer.
To figure your net condemnation
award, you generally reduce the award by the assessment
taken out of the award.
Example. To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. You were awarded $5,000 for this and spent $300 to get the award. Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. The city then paid you only $4,300. Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment taken out). If the $700 special assessment were not taken out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 - $300). The net award would not change, even if you later paid the assessment from the amount you received. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||