Question

The office building Donna owned and used for her desk-top publishing business was destroyed by a hurricane. Although the basis of the building was $80,000, Donna carried replacement cost insurance and received $160,000 from the insurance company after it was determined that the building was a complete loss. It cost her $152,000 to rebuild the store in the current year.

a. Calculate Donna's recognized gain, assuming an election under the involuntart conversion provision is made.

b. Calcualte Donna's basis in the replacement building.

Answer 1

Donna made a realized gain of 8,000 dollars

the basis for the building now will be of 152,000 dollars

Step-by-step explanation:

realized gain:

insurance proceeds less replacement cost:

160,000 - 152,000 = 8,000

the basis (value of the new office building for tax purposes) will be the 152,000 which is the cost of the office building