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Janay, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) that is destroyed by...

Janay, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) that is destroyed by a tornado in
October 2019. She receives insurance proceeds of $250,000 in January 2020. If before 2022, Janay replaces the
warehouse with another warehouse costing at least $250,000, she can elect to postpone the recognition of any
realized gain.

a- True

b- False

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Answer #1

The answer is "A" : True.

Reason :

§ 1033 of IRS deals with postponement of any realized gain on destroyed property within a certain time limit. A § 1033(a) election can be made either by filing a return for the first year in which gain from the conversion is realized consistent with § 1033 or by electing after a return is filed for that year but before the expiration of two years after the first year in which gain is realized.

In the current case, the first year in which the gain has been realized is 2020 as the insurance proceeds have been received in 2020 only. Hence if Janay can make an election under § 1033 to postpone the realized gain any time before 2020.

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