New York State condemned part of my land for a highway project and paid me an advance payment, with more expected after settlement or trial. Part of that money compensates me for damage to the LAND I'M KEEPING, not the part that was taken. Does that severance-damage portion count as taxable consideration under New York's Real Property Transfer Gains Tax?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1996 opinion is preserved here for historical and research value, not as current law.

Stefco Realty Corp. owned about 70,567 square feet of land on Sunrise Highway in Bohemia, New York. In October 1994, the New York State Department of Transportation condemned 43,715 square feet of it under the Eminent Domain Procedure Law, leaving Stefco with a roughly 26,852-square-foot remainder. Stefco accepted an advance payment of under $1 million, part of which the condemnor identified as compensation for the drop in value to the land Stefco kept -- "severance damages." Stefco expected a later settlement or trial award that would push its total recovery well over $1 million, with much of that additional amount also representing severance damages.

Former Tax Law § 1440.7 specifically included a taking by eminent domain within the gains tax's definition of "transfer of real property." But former § 1440.1(a) defined "consideration" for gains-tax purposes as the price paid or required to be paid for the property that was actually TRANSFERRED -- not for property the owner keeps. Since severance damages compensate a landowner for harm to the RETAINED remainder land, not for the parcel that was taken, the Department concluded that to the extent Stefco could establish the amount of its advance payment, settlement, or trial award attributable to severance damages, that amount fell outside "consideration" and wasn't taxed under the gains tax.

What this means for you

Landowners whose property is condemned in a partial taking

Under this now-repealed tax, only the portion of your condemnation award that compensates for the land actually taken counted toward the gains-tax consideration threshold and the taxable gain calculation. If your award bundles together payment for the taken parcel and separate severance damages for your remaining land, the burden was on you to document and establish which part was which -- the exemption wasn't automatic just because the condemnor's paperwork used the word "severance."

Eminent domain attorneys and appraisers

This opinion is a clean, if narrow, example of how a specific damages category (severance/consequential damages under eminent domain law) mapped onto the gains tax's separate statutory definition of "consideration." The same distinction between compensation for the taken parcel versus the retained parcel could resurface in other tax contexts involving partial condemnations.

Accountants reconstructing pre-1996 condemnation-related gains-tax filings

If you're working through the gains-tax treatment of an old condemnation award that closed before June 15, 1996, this ruling confirms severance damages are excludable from consideration, provided the taxpayer can substantiate the allocation.

Common questions

Q: Does this severance-damages exclusion still matter for condemnations happening today?
A: No. The Real Property Transfer Gains Tax was repealed for all transfers on or after June 15, 1996, so this specific consideration-definition question no longer arises under that tax. (It may still be relevant to other tax contexts that define "consideration" similarly, but this ruling addresses only the repealed gains tax.)

Q: Who has to prove how much of a condemnation award is severance damages versus payment for the taken land?
A: The property owner. The Department's conclusion was conditioned on the petitioner being able to "establish" the severance-damages portion -- it wasn't a blanket exclusion of any amount merely labeled as such by the condemnor.

Q: Does it matter whether the severance-damages amount comes from an advance payment, a settlement, or a trial award?
A: No. The opinion treated all three forms of payment the same way -- what mattered was what the payment compensated for (the taken parcel vs. the retained remainder), not the procedural stage at which it was paid.

Q: Can another condemned landowner rely on this specific ruling?
A: No, apart from the repeal itself -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and here the Department also expressly conditioned its answer on the petitioner's ability to prove the allocation.

Citations and references

Statutes:

• former Tax Law § 1441 (imposition of the gains tax at 10% of gain from real property transfers, where consideration was $1 million or more)
• former Tax Law § 1440.1(a) (consideration = the price paid or required to be paid for the real property transferred, less customary brokerage fees)
• former Tax Law § 1440.7 (a taking by eminent domain is included within "transfer of real property")
• Chapter 309, Laws of 1996 (repealed the gains tax for transfers occurring on or after June 15, 1996)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a96_13r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (13) R
Real Property
Transfer Gains Tax
October 24, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M960708B

On July 10, 1996, the Department of Taxation and Finance received a Petition for Advisory
Opinion from STEFCO REALTY CORP., 1520 Northern Boulevard, Manhasset, New York, 11030.
The issue raised by Petitioner, STEFCO REALTY CORP., is whether, for purposes of the
Real Property Transfer Gains Tax (the "gains tax") formerly imposed by Article 31-B of the Tax Law
consideration includes the amount attributable to severance or consequential damages to the
remaining property retained by the transferor which is paid by the State as an advance payment,
settlement or final award after trial in a condemnation proceeding.
Petitioner submits the following facts as the basis for this Advisory Opinion. The Petitioner
was the owner of certain land consisting of approximately 70,567 square feet located on Sunrise
Highway in Bohemia, New York. Under a condemnation proceeding pursuant to the Eminent
Domain Procedure Law, the New York State Department of Transportation (the "condemnor")
acquired 43,715 square feet of the land on October 27, 1994. The Petitioner has retained the
remainder of approximately 26,852 square feet of land (the "remainder land"). The Petitioner
accepted an advance payment which was less than $1 million. Included in the advance payment was
an amount, which, in the opinion of the condemnor represented the loss of value to the remainder
land ("severance damages"). It is the expectation of the Petitioner that either upon settlement or after
trial, there will be an additional amount awarded which will result in the total amount received by
the Petitioner as a result of the condemnation to be substantially in excess of $1 million. It is also
the expectation of the Petitioner that a significant portion of the total amount it receives will be for
severance damages.
Analysis
Section 1441 of the Tax Law imposed the gains tax on the gain derived from the transfer of
real property or an interest therein, where the real property was located in New York State and where
the consideration for the transfer was $1 million or more.
Chapter 309 of the Laws of 1996 repealed the gains tax for transfers of real property that
occurred or occur on or after June 15, 1996.
Section 1440.7 of the Tax Law included in the definition of "transfer of real property" the
taking by eminent domain.
When a transfer of real property occurred the consideration for gains tax purposes was the
price paid or required to be paid for the real property transferred less customary brokerage fees
related to the transfer. (See former section 1440.1(a) of the Tax Law.)

-2­
TSB-A-96 (13) R
Real Property
Transfer Gains Tax
October 24, 1996
Conclusion
As was provided in section 1440.1(a) consideration for purposes of the gains tax was the
amount paid or required to be paid for the real property transferred. Therefore, to the extent that
Petitioner can establish that the amount of the advance payment, settlement or final award after trial
is attributable to severance damage to the remainder land, such amount is not consideration within
the meaning of former section 1440.1 of the Tax Law.

DATED: October 24, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.