Question

Brent's adjusted basis in business-use nonresidential property was $95,000. He received a gross condemnation award of $120,000. His net condemnation award was $105,900. He purchased replacement property at a cost of $125,000. What is Brent's basis in the replacement property? *

$95,000

$114,100

$120,000

$125,000

Answer 1

Answer -

Step - (1) - Information Given -

Brent's adjusted basis in business-use nonresidential property was $95000.

He received a gross condemnation award of $120000.

His net condemnation award was $105900.

He purchased replacement property at a cost of $125000.

.

Step - (2) - Calculation of Brent's basis in the replacement property -

Net condemnation award proceeds = $105900.

Adjusted basis of business-use nonresidential property = $95000.

Realized Gain = ($105900 - $95000) = $10900.

Recognized Gain = $0, because the total amount reinvested exceeds the amount realized, so realized gain is deferred.

Brent's basis in the replacement property -

= $125000 - $10900 (gain deferred)

= $114100

Therefore, Option - (b) is Correct.