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Hi and welcome to Just Answer!
Compensation for damages made for your property is not taxable, but reduce the basis of your property. After the basis is reduced to zero - additional compensation will be taxable as capital gain.
Ok, so I am only taxed on the portion that is based on value of land? If so, how much?
A portion of our land that is sold - it treated as a sale transaction. You need to prorate your basis specifically to that part and calculate the capital gain on the schedule D.
How do I figure basis when the land was given to us?
If that is a long term capital gain (for the property owned more than a year) - max long term capital gain rate is 15%. Depending on your total income - for the part of the gain that otherwise would be taxable at 15% or below - the long term capital gain rate is zero percent in 2011.
"the land was given to us" - please be clear - was that a gift? inheritance? other?
"Sold" for $1 to us by parents about 15 years ago
That is treated as a gift - your basis is teh same as your parents had at that time. Plus improvement if any.
So the cost of the house would be considered improvement?
Yes - but if the part of the land you are selling has no improvements - that should be considered.
The only improvement would be the portion of the driveway I guess. We are selling 1/2 an acre with no other improvements to that part except the driveway.
So - the basis for the sold property would be = the basis of the of the portion of the land plus the basis of the driveway.
I have no idea what the basis would be for my parents at the time of the "gift". This land has been in my family for many many years. I can figure the basis of the driveway because I know how much we paid but clueless on land basis.
Unfortunately - that is what you need to find out to reduce your taxable income. The basis is generally a purchase price if the property was purchased. If the property was ever inherited – there would be stepped up basis (FMV at the time the owner died). You may try to find purchase records n your county. Any real estate agent in your area may help you.
Ugh. Ok, thanks.