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How to Avoid Taxes on Condemnation Proceeds

How to Avoid Taxes on Condemnation Proceeds

Protect Your Proceeds. Preserve Your Wealth.

When your client’s property is condemned or taken involuntarily, they may be facing more than just relocation or disruption — they could also face a large capital gains tax bill. While the settlement might seem like a win, it often brings three immediate problems:

1. What do they do with the money?
2. How much of that money can possibly be taxed?
3. What can legally be done to defer, reduce or eliminate the tax?

Fortunately, the IRS code provides powerful tools to help your clients defer or avoid those taxes altogether.

What’s the Solution?

When done properly, the IRS Code allows property owners to defer capital gains taxes if they reinvest proceeds from an involuntary conversion — such as a condemnation, government seizure, or natural disaster — into similar property within a specific timeframe.

Think of it like a tax-free reset: if you qualify and follow the rules, you can replace what was taken without triggering current taxation.

When Does Capital Gains Tax Deferral Apply?

•         Your client may be eligible to defer capital gains taxes if:

o   Their property was taken by eminent domain, condemned, or forcibly sold.

o   They received compensation for the property (cash or settlement).

o   They are open to reinvestment into similar property (e.g., business or investment grade real estate).

o   They meet strict timing and documentation requirements.

What’s the Benefit?

Without a proper tax strategy, many property owners face capital gains taxes of 20% to 50% or more on their condemnation proceeds.

With a properly executed tax strategy, they may be able to:

•         Defer 100% of the tax owed.
•         Keep more capital working for you.
•         Buy replacement property on your terms.
•         Maintain long-term wealth-building momentum.

Why a Tax Strategy is Needed Early

Many property owners lose the opportunity to defer taxes simply because:

•         They spent or co-mingled the proceeds too early.
•         Their attorney didn’t include the most favorable settlement language to preserve the capital gains tax treatment.
•         Their CPA has little to no experience with this niche area of planning.
•         They missed the reinvestment deadline or bought the wrong kind of property.

Our Role in the Tax Deferral Strategy

We specialize in helping landowners and business owners use a number of strategies to protect their wealth after a forced sale or condemnation. Our team works alongside the landowners and business owners’ current tax and legal team to:

•         Review their eligibility and timing.
•         Help structure their settlement agreement.
•         Identify compliant replacement property options.
•         Document the transaction to support their tax filing.
•         Coordinate with their professionals to avoid surprises.
  
  

The Three Key Problems We Solve Are:

1)      What to do with the money - we offer tailored strategies for reinvestment, ensuring maximum tax benefits.

2)      How to replace income – we help identify opportunities to replace lost income streams through strategic investments.

3)      How to eliminate taxes – our advanced tax strategies legally defer, reduce or may eliminate the tax burden associated with the settlement.

Our approach is collaborative. We work with the clients' trusted advisors to provide education, strategies, and proactive solutions. We are not here to replace anyone – only to add value

We support:

•         Landowners and farmers impacted by road expansions, easements, or government takings.
•         Business owners required to sell their business or investment property due to government condemnation.
•         Attorneys representing clients in eminent domain or government condemnation cases.
•         CPAs seeking expert guidance on involuntary conversion planning and the tax consequences related to business or investment property affected by government action.

Let’s Talk Before Your Client Spends the Money

If your client received a condemnation notice, is negotiating a settlement, experienced a natural disaster or just received proceeds — we should talk. Early planning makes all the difference.

 Schedule a free consultation to find out if your client qualifies for tax deferral and how we can help. We specialize in helping people who have experienced a condemnation event to defer, reduce, or may eliminate the tax burden of the settlement funds that you are about to receive through tools available in the IRS code.