Question

3. An office building with an adjusted basis of $200,000 was destroyed by fire. The owner received $500,000 from the insurance company and reinvested $450,000 of the proceeds in another office building. The owner elects to postpone as much gain as possible. The owner's recognized gain and basis in the replacement property, respectively, are:

• A. $300,000 and $450,000.

• B. $300,000 and $200,000.

• C. $50,000 and $200,000.

• D. $50,000 and $450,000.

• E. none of the above.

Answer 1

Gain or loss = Insurance proceeds received - the adjusted basis of the building

                    = $500,000 - $200,000

                    = $300,000

And, the basis of the new factory building would be $450,000

The owner's recognized gain and basis in the replacement property, respectively, are:

A. $300,000 and $450,000.