Severance Damages

Severance Damages means:
an element of value arising out of a condemnation of which a tract of land was a part. Severance damages reduce the basis of the retained property, and any excess of the severance damages over the basis is a taxable gain. See however, Former IRC (check if this IRC provision is current here) §1033.

Example of Severance Damages:

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In order to build a new road, the state highway department needs a strip of land 100 feet wide from the middle of Baker's farm. The department awards $1,000 per acre for the land taken, plus $15,000 severance damages on the retained portion for Baker's inconvenience in getting from one side of the road to the other.