.avif){kind=small}
When you own property, you expect to have full control over how it is used. However, the government has a power called eminent domain, which allows it to take private land for public projects like highways, schools, or parks. Most people know that if the government takes your entire property, they have to pay you for it. But what happens if they only take a piece of your land.
This is where things get complicated. When a portion of your land is taken, the part you get to keep might lose value because it is now smaller, harder to get to, or less useful. In the legal world, the money you are owed for that loss in value is called eminent domain severance damages.
A project might look minor on paper, but the ripple effects on your property can be significant. If part of your land is being taken, it’s worth having someone look closely at what that really means for you, both now and down the line. Call Thorsnes Bartolotta McGuire at (619) 236-9363 or fill out our online form to discuss your situation and learn what steps you can take next.
What Are Eminent Domain Severance Damages?
Eminent domain severance damages refer to the loss in value to the portion of your property you still own after the government takes part of it.
When only part of a property is acquired, the remaining land, referred to as the “remainder,” doesn’t always function the same way it did before. It may be smaller, harder to access, or less useful for its original purpose. Because of that, its market value can drop.
Severance damages are meant to account for that difference. Instead of only paying for the land that was taken, the government must also pay for the reduced value of what’s left behind.
Common Situations That Lead to California Eminent Domain Severance Damages
Not every partial taking results in these damages, but many do. Here are common ways a government project can hurt the value of the land you keep:
Loss of Access
Access can make or break a property. If a project adds a median, barrier, or reroutes traffic, it may become harder to enter or exit your property. For a business, that could mean fewer customers. For a homeowner, it could mean longer, less convenient routes. Even if access still exists, a significant change can reduce how buyers view the property.
Diminished Usefulness
Sometimes a property still exists on paper, but its function is disrupted. For example, if land is taken from the middle of a parcel, it can split the property into awkward sections. A farm may no longer support large equipment. A commercial lot may lose the layout it relied on for operations.
Loss of Parking
Parking is a major driver of value for retail spaces, offices, and multi-unit housing. A small reduction might not seem like much, but it can change how the property is used. Fewer parking spaces can lead to lower rental income, reduced customer traffic, or zoning compliance issues. Buyers and tenants notice these changes quickly.
Damage to Dependent or Non-Contiguous Properties
Some properties are more valuable because they work together. You might own two parcels used for a single purpose, like storage on one lot and operations on another. If one is affected by a taking, the other may lose its usefulness or income potential. Even when parcels are not next to each other, their connection can still impact overall value.
Easements and Ongoing Restrictions
In some cases, the government doesn’t take land outright but instead places an easement on it. This gives them the right to use part of your property for things like utilities, drainage, or access. While you still own the land, your ability to build, expand, or use it freely is limited. These restrictions can reduce what a buyer is willing to pay.
Loss of Visibility
For commercial properties, visibility is often tied directly to revenue. If a new structure, like a sound wall, overpass, or raised roadway, blocks the view of your business, it can reduce traffic and recognition.
Changes to Zoning or “Non-Conforming” Property Issues
A partial taking can push a property out of compliance with local zoning rules. For example, setbacks, lot size requirements, or parking minimums may no longer be met. While it may still be possible to use the property, restrictions on future improvements or expansions can lower its market appeal.
Uneconomic Remnants
In some cases, the remaining land is simply too small or irregular to be useful on its own. This is sometimes called an “uneconomic remnant.” If the leftover portion cannot reasonably be
developed or used, its value may drop sharply to the point where keeping it no longer makes sense financially.
It is a common mistake to assume the government’s appraiser has the final word. Their job is to keep project costs down. Our job is to make sure your property is valued fairly. At Thorsnes Bartolotta McGuire, we’ve spent over 47 years protecting property owners.
We don't just look at the dirt the government took; we look at the future of the home or business you have left. If your property's potential has been cut short, we are here to help you navigate the path forward. Reach out to our team today online or by calling (619) 236-9363.
How Are Severance Damages Eminent Domain Determined?
Calculating severance damages is not a straightforward formula. Courts rely on valuation methods, but the analysis depends heavily on real-world conditions affecting the property before and after a taking.
The most commonly used approach is known as the “Before and After” rule:
- The Before Value: This is the fair market value of the entire property as it existed just before the public project was announced or became known in the market.
- The After Value: This is the value of the remaining property once the taking has occurred and the project is accounted for in the marketplace. This includes any changes in access, usability, shape, or development potential.
The difference between these two values represents the overall loss in value caused by the project. From that figure, the value of the land that was physically taken is separated out. What remains is the potential measure of severance damages.
Are Eminent Domain Severance Damages Taxable?
This is one of the most common questions property owners ask after a partial taking, and the answer depends on several factors. In general, the IRS does not treat severance damages the same way it treats regular income or a traditional property sale.
In many situations, severance damages are considered a reduction in the overall value (or tax basis) of the property, rather than immediate taxable income. In practical terms, this means the payment is often applied to adjust what you originally paid for the property. You typically would not owe taxes on that amount right away. Instead, any tax impact may be delayed until you later sell the property and calculate your gain or loss at that time.
That said, the tax treatment is not one-size-fits-all. The way severance damages are classified can change based on the type of property and how it is used. For example:
- Primary residence vs. investment property: Different rules may apply depending on whether the property is your home, a rental, or a vacation property.
- Business use: Commercial properties can raise additional considerations, especially if income-producing structures are affected.
- Damage to improvements: If buildings or structures are impacted, the tax treatment may depend on whether those improvements are depreciable for tax purposes.
- Agricultural land: Farms and ranches can involve separate issues, particularly if crops are destroyed, harvested, or impacted by the taking.
- Type of loss involved: Not all payments are treated the same. Some amounts tied to physical damage, business interruption, or relocation expenses may be handled differently under tax rules.
One general principle is that relocation expenses are often not taxable, but even that can vary depending on how the payment is structured and documented.
When Eminent Domain Severance Damages Matter, Thorsnes Bartolotta McGuire Brings Experience That Makes the Difference
Dealing with the government can feel like a lopsided fight. They have unlimited resources and teams of lawyers. Since 1978, Thorsnes Bartolotta McGuire has been the equalizer for property owners in San Diego and across California.
We have recovered over $2 billion for our clients because we know how to litigate, and our opponents know that we don't bring frivolous claims.
If the government is planning a project that affects your land, don't wait until the bulldozers arrive. Whether you are facing a loss of access or diminished property value, we have the knowledge and the resources to maximize the outcome of your case.
Make your life better by getting the right team in your corner today. Reach out to us at (619) 236-9363 or contact us online hoy para hablar con un miembro de nuestro equipo. Hablemos de su propiedad y de cómo podemos proteger su inversión.
