California High Speed Rail: How to Defer Paying Income Tax on the Sale of Your Property

The senior tax partner here at FLGZ, Bob Fishman, recently finished writing an article on the tax aspects of having your real property condemned by the High Speed Rail Authority to make room for California's impending high speed rail line. 

Most landowners are unaware that such sales (and sales to third parties under threat of condemnation) have serious tax implications.  First, the gain on the sale will be taxable to the landowner unless proper planning is done.  Similar to section 1031 like-kind exchanges, section 1033 of the IRC code allows landowners who have property sold in a government taking to defer the recognition of the gain if they purchase similar property.  However, there are elections and procedures that must be made under strict IRS time-tables.

If any landowner has received notice from the Rail Authority that their property is in the proposed rail path then they should consult a tax attorney and begin devising a game plan as how to best proceed.  It is imperative to realize that both pre- and post-condemnation tax planning that will need to be done to ensure that the gain is properly deferred. 

This is particularly true for landowners (and their attorneys) who are going to challenge and litigate over the "price" of the property.  While landowners should ensure that they get a fair price for their property, they and their attorneys should consult with a tax attorney to ensure that no election and other deadlines are missed. 

Mr. Fishman's article is scheduled to be published in the California Tax Lawyer magazine.  In addition, there are 40 detailed examples reference in the article that go through various permutations to demonstrate some of the nuances of section 1033.  A link to the 40 examples can be found here. 

High-Speed Boondoggle? $800 Million to Save 10 Minutes

Admit it.  When the federal government talks of investing huge sums of money into high-speed rail you picture aerodynamic bullet trains humming along at 220 miles per hour. 

So when the government proclaims that it has invested $12 billion into "high-speed rail" you presume that those funds will be used to fund actual high-speed rail projects.  Not so says CNN's Drew Griffin who has released another expose on where these funds are actually going.

To sum up Drew's report, the $12 billion dollars is being used to make conventional freight trains a wee bit faster.  In essence, while the public was sold on bullet trains, the monies are really just being used to improve conventional rail lines. 

The cornerstone of Drew's report is the fact that $800 million in taxpayer "high-speed rail" funds were used to improve conventional rail track between Seattle and Portland.  The big pay-off?  Shaving 10 minutes off the travel time.

The CNN video report can be seen here.

Will Fresno's High Speed Rail Look Like Vermont's "Higher" Speed Rail?

CNN's Drew Griffin did an excellent report examining Federal high speed rail funds that were paid to Vermont in order to fund a "high speed rail" project through the State.  The only problem . . . the funds in Vermont weren't used for "high speed rail", but were instead used to turn a "slow speed" rail line into a slightly faster rail line.  In all, the new line shaved a minuscule 28 minutes off the commute time with the "higher" speed trains occasionally reaching max speeds as fast as 79 mph.

Mr. Griffin's report is a must see:

  

Will California's Bullet Train Be Solyndra Times Seven?

Chris Reed has a must read article in the City Journal pointing out some of the extreme revenue assumptions made by  the California High-Speed Rail Authority.  For example, back in 2008, the rail authority claimed that once the L.A. to San Francisco line was complete that ridership would be a whopping 117 million passengers a year.  Currently, that projection has now dropped to 44 million passengers per year.  But even under this lower estimate "44 million passengers would be 50 percent higher than the number of people Amtrak caries to and from more than 500 stations in 46 states and three Canadian provinces each year."  So where did this estimate come from?  Incredibly, it was premised on future estimated gas prices of $40 per gallon.  In addition, the public-opinion polls that were used to gauge the public's interest and potential ridership were questionable as 96% of those polled were already train riders who would be likely to support a high-speed rail. 

With $3.5 billion of federal funds committed to the project, Reed argues that it can be thought of as "Solyndra times seven"--referring to the Bay Area solar panel manufacture that received $528 in federal loans before filing for bankruptcy.