Partner, Bob Fishman, recently finished writing an article on the tax aspects of having your real property condemned by the High Speed Rail Authority to make room for California’s impending high speed rail line. 

Most landowners are unaware that such sales (and sales to third parties under threat of condemnation) have serious tax implications.  First, the gain on the sale will be taxable to the landowner unless proper planning is done.  Similar to section 1031 like-kind exchanges, section 1033 of the IRC code allows landowners who have property sold in a government taking to defer the recognition of the gain if they purchase similar property.  However, there are elections and procedures that must be made under strict IRS time-tables.

If any landowner has received notice from the Rail Authority that their property is in the proposed rail path then they should consult a tax attorney and begin devising a game plan as how to best proceed.  It is imperative to realize that both pre- and post-condemnation tax planning that will need to be done to ensure that the gain is properly deferred. 

This is particularly true for landowners (and their attorneys) who are going to challenge and litigate over the “price” of the property.  While landowners should ensure that they get a fair price for their property, they and their attorneys should consult with a tax attorney to ensure that no election and other deadlines are missed. 

Mr. Fishman’s article is scheduled to be published in the California Tax Lawyer magazine.  In addition, there are 40 detailed examples reference in the article that go through various permutations to demonstrate some of the nuances of section 1033.  A link to the 40 examples can be found here.