Question

Jessica's office building is destroyed by fire on November 15, 2018. The adjusted basis of the building is $390,000. She recelves Insurance proceeds of $557,500 on December 12, 2018. a. Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building In December 2018 for $557,500. b. Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2018 for $452,500. c. What is her basis for the replacement property in (a) and in (b)? d. Calculate Jessica's realized and recognized gain or loss if she does not Invest In replacement property. Complete the question by entering your answers in the tabs below. Reg a and b Req cand d a. Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2018 for $557,500. b. Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2018 for $452,500. (For all requirements, if no gain or loss is recognized, select "No gain/loss".) Show less C Reg a and b Req cand d >

Answer 1

Information -

Jessica's office building is destroyed by fire on November 15, 2018.

The adjusted basis of the building is $390000.

She receives Insurance proceeds of $557500 on December 12, 2018.

.

( a ) -- Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building In December 2018 for $557500.

Answer -

Insurance proceeds = $557500.

Adjusted basis = $390000.

Realized Gain = ($557500- $390000) = $167500.

Recognized Gain = $0 Gain recognized, because the replacement was for $557500 or more.

.

( b ) -- Calculate her realized and recognized gain or loss for the replacement property if she acquires an office building in December 2018 for $452500.

Answer -

Realized Gain = ($557500- $390000) = $167500.

Recognized Gain = Gain is recognized to the lesser of

• The realized gain = $167500; or
• The amount of the proceeds in excess of the replacement cost = ($557500 - $452500) = $105000.

Therefore, Recognized Gain = $105000.

.

( c ) -- What is her basis for the replacement property in (a) and in (b) ?

Answer -

Her basis for the replacement property in (a) -

= $557500 - $167500 (Gain deferred)

= $390000

Her basis for the replacement property in (b) -

= $452500 - $62500 (Gain deferred = $167500 - $105000)

= $390000

.

( d ) -- Calculate Jessica's realized and recognized gain or loss if she does not Invest In replacement property.

Answer -

Realized Gain = ($557500- $390000) = $167500.

Recognized Gain = ($557500- $390000) = $167500.