Question

On November 18, 2018, equipment is stolen from ABC manufacturing. ABC purchased the equipment for $100,000 and its adjusted basis is $0. The insurance company paid ABC $20,000 for its loss on January 6, 2019. How long does ABC have to purchase qualified replacement property and how much must it reinvest to avoid recognizing its gain?

Answer 1

The answer is - December 31, 2020 and $20,000 respectively

Step-by-step explanation:

The gain from an involuntary conversion of tax payer's property may be deferred if the property is replaced within the staturory time limit established by law

Time limilt is 2 years for Destruction or theft of property resulting in insurance recovery

The time starts when the insurance/government proceeds are received

ABC have to reinvest by December 31, 2020 as the proceeds are received on January 6, 2018

Gain of 20,000 which is insurance proceeds received less basis(20,000 - 0) has to be reinvetsed

The answer is - December 31, 2020 and $20,000 respectively