We live in Minnesota. In 1995 the city bought property from my father to construct a levee to satisfy the Army Corp of Engineers which split the property in 2 pieces. The city signed an Easement to build access which crosses the levee but never did it because my father passed away. The property was in the step mother's name until she deeded it over to me and my siblings. A conservancy is buying the property that we can not get to and the city is compensating us for breach of contract for providing the access road for over 20 years. Is this money we will be receiving taxable?
I could argue as follows --- (a) the father's property was condemned/sold to the city for a sum plus some work on the part of the city to make the remainder property useful ( via an access corridor). His sales price and therefore the tax of gain included recognition of this contractual performance. Thus the transaction inits entirety was taxed. (b) the father died and the beneficiary ( mother ) got a step-down to FMV; (c) the children took over the property through gift but could not use the property because city did not allow access -- thus their property essentially was not available to them i.e the whole property was un-useable -- their right to enjoy the property was constrained. Now when the city pays them for non-use of their property in-lieu of rectifying the defect, ( for the harm they caused for years ), this is not income -- it is payback for sufferance. No ? Perhaps you need to see a lawyer . To me treating me this compensation ( for damage ) as income would be harm on top of harm -- No ?