Question

On June 2, 2017, a tornado destroyed the building in which FF operated a fast-food franchise. FF’s adjusted basis in the building was $214,700. In each of the following cases. A. Determine FF’s recognized gain or loss on this property disposition and FF’s basis in the replacement building. Assume that FF would elect to defer gain recognition when possible. On September 8, 2017, FF received a $250,000 reimbursement from its insurance company. On August 10, 2018, it completed construction of a replacement building for a total cost of $300,000.

B. Determine FF’s recognized gain or loss on this property disposition and FF’s basis in the replacement building. Assume that FF would elect to defer gain recognition when possible. On September 8, 2017, FF received a $250,000 reimbursement from its insurance company. On August 10, 2018, it completed construction of a replacement building for a total cost of $235,000.
C. Determine FF’s recognized gain or loss on this property disposition and FF’s basis in the replacement building. Assume that FF would elect to defer gain recognition when possible. On September 8, 2017, FF received a $200,000 reimbursement from its insurance company. On August 10, 2018, it completed construction of a replacement building for a total cost of $300,000.

Answer 1

In each case, the recognized gain or loss on the property disposition is calculated based on the insurance reimbursements and the construction costs. The basis in the replacement building is also determined. The different scenarios result in either a gain or loss for FF.

Step-by-step explanation:

To determine the recognized gain or loss on the property disposition and the basis in the replacement building, we need to consider the insurance reimbursements and the construction costs. In each case, let's calculate the recognized gain or loss:

1. Case A: FF received a $250,000 reimbursement and completed construction with a total cost of $300,000. The recognized gain is $250,000 - $214,700 = $35,300. The basis in the replacement building is $300,000.
2. Case B: FF received a $250,000 reimbursement and completed construction with a total cost of $235,000. The recognized gain is $250,000 - $214,700 = $35,300. The basis in the replacement building is $235,000.
3. Case C: FF received a $200,000 reimbursement and completed construction with a total cost of $300,000. The recognized gain is $200,000 - $214,700 = -$14,700 (loss). The basis in the replacement building is $300,000.