Understanding Severance Damages

What severance damages are

Severance damages are compensation for the loss in value of the remaining property when only part of a parcel is acquired. They are separate from the payment for the land itself.

What counts, how it is measured, and how it is proven all vary by state. An eminent domain attorney can explain how your state handles them.

This page is educational and not advice for your situation.

How a taking can reduce what is left

These are common ways a partial taking affects the remaining property. Whether each one is compensable depends on state law and your facts.

Loss of accessDriveways, curb cuts, or frontage may be changed or removed.
A smaller or odd shapeThe remainder may be harder to build on, farm, or subdivide.
Less frontage or visibilityThis can matter most for commercial property.
Setbacks and zoningWhat remains may no longer meet current requirements.
Drainage, grade, and utilitiesConstruction can change how water and services reach the property.
Disruption to useParking, circulation, and day-to-day operations can be affected.

The “before and after” idea

Many states look at severance damages through a comparison of the property’s value before and after the project.

Value the whole property beforeWhat the entire parcel was worth before the project.
Value the remainder afterWhat the property you keep is worth once the project is in place.
Compare the twoAfter accounting for the payment for the land taken, the difference is the starting point in many states.

A general illustration of one common approach. Methods vary by state, and some states also consider benefits the project may bring. Confirm how yours works with an eminent domain attorney.

The first offer may not include them

Question to ask
Does this offer address the value of my remaining property, or only the land taken?

The initial offer often centers on the land being acquired. Severance damages ask a different question: what happened to the value of everything that is left.

If the offer does not say how the remaining property was valued, that is worth asking about before you respond.

An independent appraiser can review both parts, the land taken and the property that remains.

Document how you use the property today

Question to ask
What records show my current use, access, and plans for the property?

Severance claims tend to rest on how the property worked before the taking. Gathering records early gives your appraiser and attorney more to work with:

Surveys and site plans
Photos of access, parking, and buildings
Lease and tenant information
Permits and development plans

They can affect your tax picture

Question to ask
How do these amounts change my basis, my gain, and my replacement planning?

Severance damages are generally treated as part of the condemnation award for tax purposes. That means they can affect your adjusted basis, any gain, and how much you may want to reinvest if you use Section 1033.

Ask your tax advisor how they apply to your facts before you decide how to use the funds.

See how Section 1033 fits in

Section 1033 explained in two minutes, before you make any decisions with your proceeds.

Questions to bring to your first conversation

Print this list or save it. Your appraiser, attorney, and tax advisor can help answer them.

Does this offer address the value of my remaining property, or only the land taken?
Which of the items in my state count toward severance damages?
Who is valuing the remainder, and what method are they using?
What records show my current use, access, and plans for the property?
How do these amounts change my basis, my gain, and my replacement planning?

Common questions

Are severance damages paid in every partial taking?

Not automatically. Whether you have a claim, and how much it may be, depends on your state’s law and the facts. It helps to ask an eminent domain attorney early.

Is this the same as the payment for the land taken?

No. The payment for the land acquired is one part of the picture. Severance damages address the loss in value of the property that remains.

Can a project affect my value if none of my land is taken?

Sometimes, but state rules differ widely on when that kind of impact is compensable. An eminent domain attorney can tell you what applies where you live.

How are severance damages taxed?

They are generally treated as part of the condemnation award for tax purposes, so they can affect your basis and any gain. Your tax advisor can explain how they apply to you, including if you plan to use Section 1033.

Talk it through before you accept an offer

If you have received, or expect to receive, condemnation proceeds, a 15-minute conversation can help you understand the questions to ask, alongside your appraiser, tax advisor, and attorney.

Louis Herford

Exclusive Financial Resources

LHerford@Exclusive1031.com

(704) 451-8292

Book a 15-minute consultation