Final answer:
Yes, the taxpayer can elect to defer gain if they sell the property to a party other than the condemning governmental unit as long as the property will be used for public use.
Step-by-step explanation:
Yes, the taxpayer can elect to defer gain if they sell the property to a party other than the governmental unit that is threatening to condemn the property. According to the Takings Clause and the power of eminent domain, the government has the right to take private property for public use, but the property owner must be paid a fair amount for their property. The key factor is that the property is used for public use, which can include redevelopment projects that benefit the economic development of the community. In the case of Kelo v. City of New London, the Supreme Court ruled that condemning private residences to build a redevelopment project qualified as 'public use.' Therefore, if the threat of condemnation exists and the taxpayer believes the property will be condemned, they can sell the property to another party and elect to defer gain.