are street right of way purchases taxable?

[pb4uski]

The city where I live wants to buy a right of way on my property for a turn lane. the amount is in the 5 digits. I was wondering if anyone here has dealt with this and if the money is taxable as income or capital gains. I don't want to pay taxes on this if I can avoid it, but don't know the best way to handle it. any ideas?

There is a bit of confusion in my mind over what is going on here.

Typically, a right of way is granting the right to use or travel over someone's property. For example, the town has a right-of-way along the boundary of my property along the public road. For x feet from the road's edge the town has the right to clear, trim, dredge, etc. but it is still my property.

However, if the city is going to put in a turn lane I would think that they are proposing to purchase a part of the OP's property rather than a right of way. Perhaps the OP can clarify.

 

[skipro33]

I had Cal-trans contact me for an easement along one side of my acreage that fronted a highway. They wanted to straighten out a curve in the road. They asked me how much I wanted. I told them all I wanted was an encroachment from the highway to the property with a paved apron. They were surprised I asked so little, but in reality, I am now the only one that has an encroachment along that stretch and was able to use as a driveway and added an in-law quarter to my land.
Since it was a quid-pro-quo, they got the easement, I got the encroachment rights, no one ever mentioned it as something taxable. Surely did not show up in any bank account, although it should add value some day if or when I sell this place.

 

[jpeter1093]

How do you compute cost basis for a right of way? I'm assuming a right of way "sale" means you still actually own the land?

 

[frank]

There is a bit of confusion in my mind over what is going on here.

Typically, a right of way is granting the right to use or travel over someone's property. For example, the town has a right-of-way along the boundary of my property along the public road. For x feet from the road's edge the town has the right to clear, trim, dredge, etc. but it is still my property.

However, if the city is going to put in a turn lane I would think that they are proposing to purchase a part of the OP's property rather than a right of way. Perhaps the OP can clarify.

actually over the last 45 years I have been here the road, when being redone at different times seems to have wandered toward my property, so in order to obtain the property that they are already using that belongs to me plus enough for the turn lane the engineers figured they had to purchase so many feet from of my property to obtain the original right of way they should have purchased before and enough for the turn lane. sounds confusing but in reality they are just wanting to buy about 2500 sq ft of my property in order to make things right.

also If they are making me an offer to purchase this property and telling me that if it the property sale is absolutely not going to happen because of me, they will start eminent domain proceedings, does that mean eminent domain is already in use or are we still in the process of just selling? I think there might be a difference if it is eminent domain or just a sale. thanks

 

[pb4uski]

^^^ So from what you wrote it sounds like they are looking to purchase part of your property and not purchase a right of way.

I think the last part is pretty typical. Their Plan A is to negotiate with you to purchase the property that they need for the turn lane and at the same time resolve any previous issues where they have improperly used your property. Plan B is invoked if you all can't come to terms... they will acquire the property via eminent domain pay you what they think they should and then if you don't like what they pay you you'll need to take them to court.

You probably should be consulting a lawyer if this a big deal for you.

 

[Ronstar]

actually over the last 45 years I have been here the road, when being redone at different times seems to have wandered toward my property, so in order to obtain the property that they are already using that belongs to me plus enough for the turn lane the engineers figured they had to purchase so many feet from of my property to obtain the original right of way they should have purchased before and enough for the turn lane. sounds confusing but in reality they are just wanting to buy about 2500 sq ft of my property in order to make things right.

also If they are making me an offer to purchase this property and telling me that if it the property sale is absolutely not going to happen because of me, they will start eminent domain proceedings, does that mean eminent domain is already in use or are we still in the process of just selling? I think there might be a difference if it is eminent domain or just a sale. thanks

Sounds like they are going to make you an offer to purchase part of your property. Sounds like they are intending to secure a fee simple interest (Ownership) and not an easement (their right to use where you retain the fee simple interest).

My guess is that they will make a written offer and wait for your decision. If you reject the offer, then they will begin condemnation. If you accept the offer, condemnation will not be necessary, and they will prepare a deed with the legal description being the portion of your property to be acquired.

In Illinois, the state cannot make an offer that exceeds their appraised value. That is why so many go to condemnation - the owner rejects the state's offer, and it goes to condemnation. The state gets immediate ownership, the seller gets the appraised value, and then later a court decides what the seller should be paid.

I was involved in one case where IDOT wanted property from Northern Illinois Gas. Their offer was more than a million $ less than the amount Illinois Tollway had just paid the gas company for a similar property. In pretrial, the judge strongly suggested that IDOT negotiate upward. But IDOT couldn't - they were bound by their appraisal. So it went to condemnation - I'm not sure how it ended up, but I'm sure that IDOT had to pay at least what the Tollway had paid for a similar piece.

My suggestion is to get a real estate attorney to help you with this.

 

[ncbill]

Real property has a basis. If you sell it for more than that, even if the sale is involuntary, you have a taxable capital gain.

No chance it will be a gain.

Here you're lucky if the city offers you half tax value as their initial offer.

Whatever the OP gets for it in the end, it will be a loss...I assume a long-term loss.

Take the land value reported in nearby comp sales, average them, pro-rate by area, & there's the market value.

Difference between that & what the OP gets is their LTC loss.

 

[Oakster]

There is a bit of confusion in my mind over what is going on here.

Typically, a right of way is granting the right to use or travel over someone's property. For example, the town has a right-of-way along the boundary of my property along the public road. For x feet from the road's edge the town has the right to clear, trim, dredge, etc. but it is still my property.

However, if the city is going to put in a turn lane I would think that they are proposing to purchase a part of the OP's property rather than a right of way. Perhaps the OP can clarify.

It is often called a Right of Way because it is the Publics Right of Way. It could be owned by the Entity or owned by the adjacent landowners with the entity owning the right of trespass. Normally, the property ownership is transferred to the government body, but not always.

Another factor is how the project is funded. If there is federal funding involved (which is quite common currently) there is little wiggle room on the price, which is determined by appraisers following what I think they call the yellow book. Its difficult to change the price, but easier to change the "damages" if the acquisition damages the value of the overall property.

 

[Oakster]

I had Cal-trans contact me for an easement along one side of my acreage that fronted a highway. They wanted to straighten out a curve in the road. They asked me how much I wanted. I told them all I wanted was an encroachment from the highway to the property with a paved apron. They were surprised I asked so little, but in reality, I am now the only one that has an encroachment along that stretch and was able to use as a driveway and added an in-law quarter to my land.
Since it was a quid-pro-quo, they got the easement, I got the encroachment rights, no one ever mentioned it as something taxable. Surely did not show up in any bank account, although it should add value some day if or when I sell this place.

It is often easier, and often get more value, to trade services for the property than dollars. Its easy to install an approach, improve culverts, pave an approach etc during a project. Nobody really cares and it often makes sense. When it comes down to dollars... its highly scrutuized and other landowners want to be treated the same, etc plus the taxes....

 

[Oakster]

actually over the last 45 years I have been here the road, when being redone at different times seems to have wandered toward my property, so in order to obtain the property that they are already using that belongs to me plus enough for the turn lane the engineers figured they had to purchase so many feet from of my property to obtain the original right of way they should have purchased before and enough for the turn lane. sounds confusing but in reality they are just wanting to buy about 2500 sq ft of my property in order to make things right.

also If they are making me an offer to purchase this property and telling me that if it the property sale is absolutely not going to happen because of me, they will start eminent domain proceedings, does that mean eminent domain is already in use or are we still in the process of just selling? I think there might be a difference if it is eminent domain or just a sale. thanks

I would think that you could ask for a notice for the immenent domain process. The Uniform Act which is part of federally funded projects, requires several notices for the possibility of condemnation. I would think (I dont know for sure) that the entity could give you the first notice, and that should cover the eminent domain part. Then you can take the price without going through the rest of the process. That would satisfy ( I think) the threat of eminent domain.