Question

6. Sandra, who is single, moved into a new home three months ago that she had purchased for $200,000. Because Sandra's employer is closing their office and moving to a different state, she now sells her home for $240,000. What is Sandra's recognized gain from the sale of her home? a. $0 c. $31,250 b. $8,750 d. $40,000 _7. Mark's business building was destroyed by a hurricane in 20X5. The building had an adjusted basis of $250,000 and a fair market value of $270,000 immediately before the hurricane damage. Mark received a reimbursement of $300,000 from his insurance company in 20X6 and immediately spent $270,000 on a new business building. What amount must Mark include in his gross income in 20X6? a. $0 c. $30,000 b. $20,000 d. $50,000

Answer 1

Question 6.

Cost of property sold : $ 200000

Sale value of Property : $ 240000

Recognized Gain from Sale : $ 40000 ( $ 240000 sale value - $ 200000 Cost of purchase ) ( Option D)

Question 7.

Book Value of Mark's Building : $ 250000

Fair Market value of Mark's Building : $ 270000

Insurance reimbursement received : $ 300000

Amount spend on new building : $ 270000

Building value which need to be considered for loss due to hurricane damage : $ 250000 ( Cost or Fair value which ever value)

Net gain from reimbursement from Insurance Co : $ 50000 ( $ 300000 ( Insurance reimbursement received less Cost of building destroyed $ 250000) ( Option D)

Additional Note : Amount spend on new building would be capitalised at value actually spend - in this case : $ 270000