Question

The building used in Tim's business was condemned by the city of Lafayette Tim received a condemnation award of $125,000. He paid $1,200 in lawyer's fees and$800 for an appraisal of the property. Tim's adjusted basis in the building was $60,000. Tim reinvests in similar property costing $110,000, and Tim makes the proper election regarding the property. What is the amount of Tim's realized (not recognized) gain on the condemnation?

Answer 1

The realized gain on the condemnation of Tim's property is calculated by subtracting the adjusted basis and related costs from the total condemnation award, resulting in a realized gain of $63,000.

Step-by-step explanation:

The question asks to calculate the realized gain on the condemnation of Tim's business property. To find the realized gain, you need to subtract Tim's adjusted basis in the building from the total amount received after the condemnation award. The calculation is as follows:

Total condemnation award: $125,000

Minus: Lawyer's fees: $1,200

Minus: Appraisal fees: $800

Equals: Net amount received: $123,000

Minus: Adjusted basis in the building: $60,000

Equals: Realized gain: $63,000

The realized gain on the condemnation is $63,000.