Page 98 - Virtual Currencies

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If a portion of a MACRS asset you own is in- Related property voluntarily sold. A volun- and $2,000 accrued real estate taxes. You are
voluntarily converted and gain is not recognized tary sale of your property may be treated as a considered to have received the entire
in whole or in part, the partial disposition rules in forced sale that qualifies as an involuntary con- $200,000 as a condemnation award.
Treasury Regulations section 1.168(i)-8 apply. version if the property had a substantial eco-
nomic relationship to property of yours that was Interest on award. If the condemning au-
This publication explains the treatment of a condemned. A substantial economic relation- thority pays you interest for its delay in paying
gain or loss from a condemnation or disposition ship exists if together the properties were one your award, it is not part of the condemnation
under the threat of condemnation. If you have a economic unit. You must also show that the award. You must report the interest separately
gain or loss from the destruction or theft of condemned property could not reasonably or as ordinary income.
property, see Pub. 547. adequately be replaced. You can elect to post- Payments to relocate. Payments you re-
pone reporting the gain by buying replacement ceive to relocate and replace housing because
Condemnations property. See Postponement of Gain, later. you have been displaced from your home, busi-
ness, or farm as a result of federal or federally
Gain or Loss assisted programs are not part of the condem-
A condemnation is the process by which private nation award. Do not include them in your in-
property is legally taken for public use without From Condemnations
the owner's consent. The property may be come. Replacement housing payments used to
buy new property are included in the property's
taken by the federal government, a state gov- If your property was condemned or disposed of
ernment, a political subdivision, or a private or- under the threat of condemnation, figure your basis as part of your cost.
ganization that has the power to legally take it. gain or loss by comparing the adjusted basis of Net condemnation award. A net condem-
The owner receives a condemnation award your condemned property with your net con- nation award is the total award you received, or
(money or property) in exchange for the prop- demnation award. are considered to have received, for the con-
erty taken. A condemnation is like a forced sale, demned property minus your expenses of ob-
the owner being the seller and the condemning If your net condemnation award is more than taining the award. If only a part of your property
authority being the buyer. the adjusted basis of the condemned property, was condemned, you must also reduce the
you have a gain. You can postpone reporting award by any special assessment levied
Example. A local government authorized to gain from a condemnation if you buy replace- against the part of the property you retain. This
acquire land for public parks informed you that it ment property. If only part of your property is is discussed later under Special assessment re-
wished to acquire your property. After the local condemned, you can treat the cost of restoring tained out of award.
government took action to condemn your prop- the remaining part to its former usefulness as
erty, you went to court to keep it. But, the court the cost of replacement property. See Post- Severance damages. Severance damages
decided in favor of the local government, which ponement of Gain, later. are not part of the award paid for the property
took your property and paid you an amount condemned. They are paid to you if part of your
fixed by the court. This is a condemnation of pri- If your net condemnation award is less than property is condemned and the value of the part
vate property for public use. your adjusted basis, you have a loss. If your you keep is decreased because of the condem-
loss is from property you held for personal use, nation.
Threat of condemnation. A threat of condem- you cannot deduct it. You must report any de- For example, you may receive severance
nation exists if a representative of a government ductible loss in the tax year it happened. damages if your property is subject to flooding
body or a public official authorized to acquire because you sell flowage easement rights (the
property for public use informs you that the gov- You can use Part 2 of Table 1-3 to fig- condemned property) under threat of condem-
ernment body or official has decided to acquire TIP ure your gain or loss from a condemna- nation. Severance damages may also be given
your property. You must have reasonable tion award. to you if, because part of your property is con-
grounds to believe that, if you do not sell volun- demned for a highway, you must replace fen-
tarily, your property will be condemned. Main home condemned. If you have a gain ces, dig new wells or ditches, or plant trees to
The sale of your property to someone other because your main home is condemned, you restore your remaining property to the same
than the condemning authority will also qualify can generally exclude the gain from your in- usefulness it had before the condemnation.
as an involuntary conversion, provided you come as if you had sold or exchanged your The contracting parties should agree on the
have reasonable grounds to believe that your home. You may be able to exclude up to specific amount of severance damages in writ-
property will be condemned. If the buyer of this $250,000 of the gain (up to $500,000 if married ing. If this is not done, all proceeds from the
property knows at the time of purchase that it filing jointly). For information on this exclusion, condemning authority are considered awarded
will be condemned and sells it to the condemn- see Pub. 523. If your gain is more than you can for your condemned property.
ing authority, this sale also qualifies as an invol- exclude but you buy replacement property, you You cannot make a completely new alloca-
untary conversion. may be able to postpone reporting the rest of tion of the total award after the transaction is
Reports of condemnation. A threat of the gain. See Postponement of Gain, later. completed. However, you can show how much
condemnation exists if you learn of a decision of the award both parties intended for sever-
to acquire your property for public use through a Condemnation award. A condemnation ance damages. The severance damages part of
report in a newspaper or other news medium, award is the money you are paid or the value of the award is determined from all the facts and
and this report is confirmed by a representative other property you receive for your condemned circumstances.
of the government body or public official in- property. The award is also the amount you are
volved. You must have reasonable grounds to paid for the sale of your property under threat of Example. You sold part of your property to
believe that they will take necessary steps to condemnation. the state under threat of condemnation. The
condemn your property if you do not sell volun- contract you and the condemning authority
tarily. If you relied on oral statements made by a Payment of your debts. Amounts taken signed showed only the total purchase price. It
government representative or public official, the out of the award to pay your debts are consid- did not specify a fixed sum for severance dam-
IRS may ask you to get written confirmation of ered paid to you. Amounts the government ages. However, at settlement, the condemning
the statements. pays directly to the holder of a mortgage or lien authority gave you closing papers showing
against your property are part of your award, clearly the part of the purchase price that was
Example. Your property lies along public even if the debt attaches to the property and is for severance damages. You may treat this part
utility lines. The utility company has the author- not your personal liability. as severance damages.
ity to condemn your property. The company in- Treatment of severance damages. Your
forms you that it intends to acquire your prop- Example. The state condemned your prop- net severance damages are treated as the
erty by negotiation or condemnation. A threat of erty for public use. The award was set at amount realized from an involuntary conversion
condemnation exists when you receive the no- $200,000. The state paid you only $148,000 be- of the remaining part of your property. Use them
tice. cause it paid $50,000 to your mortgage holder
Chapter 1 Gain or Loss Page 7