Question

Miller's office building with an adjusted basis of $625,000 and a fair market value of $885,000 is condemned on December 30, 2019. Miller is a calendar year taxpayer. He receives a condemnation award of $850,000 on March 1, 2020. He builds a new office building at a cost of $830,000, which is completed and paid for on December 31, 2022. What is Miller's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition

Answer 1

1a. Recognized Gain $20,000

1b. Basis $625,000

Step-by-step explanation:

1a. Calculation for Miller's recognized gain using this formula

Miller's recognized gain =Condemnation award-Costs of building a new office

Let plug in the formula

Miller's recognized gain=$850,000-$830,000

Miller's recognized gain=$20,000

Therefore Miller's recognized gain will be $20,000

1b.Miller's basis

Based on the information given we were told that Miller's office building had an adjusted basis of the amount of $625,000 which simply means that Miller's BASIS for the new office BUILDING will be the amount of $625,000

Therefore the Basis is $625,000