Is it enough money to talk to a lawyer first?
In general, the land owner owes capital gains tax if the land was sold for more than the cost basis. If the owner was the original owner, the cost basis is what they paid. If the land was inherited, the heir gets a stepped up basis equal to the fair market value on the day the previous owner died.
So to really get you on the right track, we need to know:
1. When did your grandfather die?
2. Did he have a will, and who inherited the land?
3. When was the land sold?
4. Who were the owners when the land was sold? Or, if no owner could be identified, who would have been the legal owner(s)?
5. If the land was sold after your grandfather died, what was the fair market value on the day he died? And what was the selling price?
6. Did the money earn interest while it was in state custody? Do you know the interest amount separate from the sales proceeds?
7. Any other important parts of the story.
8. Will the state issue any tax documents to you? (Like a 1099-MISC, 1099-G, 1099-INT, or 1099-S?)
