If part of the property that is condemned was used as your home and part was used for business, or was rented, you will need to calculate the gain or loss from condemnation as if they were two separate properties. The gain or loss on each part may have different tax treatments. You would need to go through the following steps:
Allocate the condemnation award between the personal and business parts of the property, in proportion to the original basis allocated to each part.
Determine the adjusted basis in the personal and business portions of the property.
Additions or improvements that benefit the entire property should be allocated between the personal and business portions based on their proportionate original basis.
Additions or improvements that benefit one or the other parts should be added to the basis of that part of the property.
Casualty losses or other basis reductions that affected the entire property should be taken as proportionate reductions in the basis of both the personal and business parts of the property.
Casualty losses or other basis reductions that affected only the personal or business parts of the property should be taken as a reduction in the basis of the corresponding part of the property.
Depreciation taken on the business part of the property should be taken as a reduction in the basis of the business part.
Determine the gain or loss on the personal part and business part of the property (the proportionate part of the condemnation award minus the adjusted basis of each part)
You may be able to exclude any gain on the condemnation of the part of the property used as your home. A loss on the part used as your home would not be deductible.
A gain or loss on the business part may be recognized as an ordinary or capital gain or loss, or if there is a gain, it may be postponed by buying replacement property.