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The city of Lake forest ,Ca. filed eminent domain against me/my property. They acquired the parcel through a settlement and issued me a 1099 for the entire price of settlement, including all attorney fees and costs. Is this correct? I have the state tax bill asking me for more than I netted from the settlement? and I just received an IRS letter.
Optional Information: State/Country relating to question: California Already Tried: Nothing
Good morning. No....the 1099 simply indicates the amount paid to you. You will need to amend your tax returns and deduct your basis from the amount distributed (less all costs of closing, including fees and costs). You only are subject to tax on the gain (i.e., the difference), which will be taxed as long term capital gain if you held the property 12 months or more.
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is there a specific tax code that states this fact?
Go to IRS Publication - Topic 409...it specifies how to calculate capital gain. http://www.irs.gov/taxtopics/tc409.html
Experience: Texas lawyer for 32 years; Also RE developer