Question

Jessica’s office building is destroyed by fire on November 15, 2016. The adjusted basis of the building is $360,000. She receives insurance proceeds of $505,000 on December 12, 2016. (If there is no gain or loss, select "No gain/loss".)

Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2016 for $505,000.

Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2016 for $415,000.

What is her basis for the replacement property in (a) and in (b)?

Calculate Jessica’s realized and recognized gain or loss if she does not invest in replacement property.

b. Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2016 for $415,000.

B	REALIZED GAIN	$145,000
	RECOGNIZED GAIN	????

Answer 1

a	Realized and recognized gain or loss for the replacement property is she acquires an
	office building in December 2016 for $505000
	Realized gain:
	Amount realized from insurance	$505,000
	Less: adjusted basis of the office building destroyed	$360,000
	Realized gain	$145,000
	Recognized gain:
	Insurance Proceeds	$505,000
	Less: Cost of replacement property	$505,000
	Recognized gain	$0
	Basis in replacement property:
	Cost of replacement property	$505,000
b	Realized and recognized gain or loss for the replacement property is she acquires an
	office building in December 2016 for $415000
	Realized gain:
	Amount realized from insurance	$505,000
	Less: adjusted basis of the office building destroyed	$360,000
	Realized gain	$145,000
	Recognized gain:
	Insurance Proceeds	$505,000
	Less: Cost of replacement property	$415,000
	Recognized gain	$90,000
	Deferred gain (145000-90000)	$55,000
	Basis in replacement property:
	Cost of replacement property	$415,000
	Less: Deferred gain	$55,000
	Basis in replacement property	$360,000
b	Realized and recognized gain or loss if she does not invest in replacement property
	Realized gain:
	Amount realized from insurance	$505,000
	Less: adjusted basis of the office building destroyed	$360,000
	Realized gain	$145,000
	Jesicca can invest in replacement property with in two years from the end of tax year
	in which office building destroyed by fire. If she does not invest in any replacement
	property, the realized gain of $145000 will be taxable.