Bill received $100,000 in insurance proceeds to compensate him for business equipment destroyed by a fire....

Bill received $100,000 in insurance proceeds to compensate him for business equipment destroyed by a fire. The adjusted basis of the equipment was $80,000. Bill reinvested $95,000 of the insurance proceeds in replacement business equipment within the time allowed. He wants to defer game to the maximum extent allowed. Bill must recognize ______ of gain.

a. $2500

b. $5000

c. $15,000

d. $20,000

Expert Solution

Correct answer is option B

$5000

Insurance proceeds	100000
Minus: Adjusted basis of old building	(80000)
Gain realized	20000

Insurance proceeds	100000
Minus: Proceeds reinvested	(95000)
Proceeds not reinvested	$5000

Gain recognized is lesser of Gain realized or Proceeds not reinvested. Therefore,

Gain recognized = $5000

ekkarill92 answered 2 years ago

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