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Hopefully Ira will soon be here to help you. He is kinda the New Jersey tax pro. If not, we have several other tax pros who hopefully will weigh in for an answer. Bit I must admit JD .. you do come up with some doozies ;)

I don't have a quick answer. My first reaction would be to treat this as a recovery. See IRS Pub. 525.

NJ is trickier since it generally does not allow any deductions. You can offset losses against gains of the same type in the same year as the income is reported. Since most of the remediation expenses were probably paid before the reimbursement, you don't have the offset. On the other hand, the remediation program is for reimbursement of costs incurred in the public good, so I would expect that any payments would be tax-exempt. You might find more information by researching the legal history of The Brownfield and Contaminated Site Remediation Act, N.J.S.A.58:10B-1 et seq.

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