Question

Nick had a business building destroyed in a fire. The old building was purchased for $375,000 and $60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Nick found qualified replacement property which he acquired six months later for $390,000.

Realized Gain/Loss	Recognized Gain/Loss	Basis in New Asset

Katie traded computer equipment used in her business to a computer dealer for some new computer equipment. Katie originally purchased the computer equipment for $15,000 and it had an adjusted basis of $11,000 at the time of the exchange.  The computer equipment was worth $12,000 at the time of the exchange. Katie also received a used copier worth $2,000 in the transaction.

Realized Gain/Loss	Recognized Gain/Loss	Basis in New Asset

Holiday exchanged an office building used in its business for a rental house. Holiday originally purchased the building for $80,000 and it had an adjusted basis of $53,000 at the time of the exchange. The rental house had a fair market value of $62,000. Holiday also received $7,000 of cash in the transaction.

Realized Gain/Loss	Recognized Gain/Loss	Basis in New Asset

Brett sold land he had held for 8 years valued at $210,000 in Year 1. His original basis in the land was $180,000. For the land, Brett received $60,000 in cash in the current year and a note providing $150,000 in the following year.

Year	Realized Gain/Loss	Recognized Gain/Loss	Basis in New Asset
Year 1
Year 2

Answer 1

solution :

given that

Nick had a business building destroyed in a fire.

The old building was purchased for $375,000 and $60,000 of depreciation deductions had been taken.

also given that

Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000.

Nick found qualified replacement property which he acquired six months later for $390,000.

Adjusted basis of the old building,} =Cost of the old building —Depreciation which has been destroyed in fire = $375,000 - $60,000 =$315,000 Insurance proceeds = $400,000.

Realized gain = Insurance proceeds - Adjusted basis of destroyed building =$400,000 - $315,000 = $85, 000

Hence, nicks realized gain is $85,000.

Recognized gain = Lower of realized gain or uninvested insurance proceeds = Realized gain (or) ($400, 000— $390, ODD) =$85, 000 (or)$10,000 =$10,000

therefore

nicks recognized gain is $10,000.