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Do I pay taxes on my award?

It depends. A condemnation is considered an involuntary conversion and is treated differently from other sales and other cases.

You will have a period of time to reinvest the proceeds of the case and defer your tax obligation until a later date. 

If a portion of your award is considered severance damages (compensation for damages to property you continue to own), you may be able to defer the payment of taxes on that portion of your award, as well. Those portions of your award attributable to business damages or interest are taxed as ordinary income. 

The tax-deferral benefits of condemnation are also available to sales in lieu of condemnation. You may thus defer the payment of taxes on a sale to the condemning authority even if you settle the dispute without the government being required to file condemnation action.

You should consult a tax attorney for the current rules on IRS treatment of condemnation awards.

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