Question

Exercise 13-40 (Algorithmic) (LO. 7) On February 24, 2019, Allison's building, with an adjusted basis of $3,713,200 (and used in her trade or business), is destroyed by fire. On March 31, 2019, she receives an insurance reimbursement of $4,827,160 for the loss. Allison invests $4,344,444 in a new building and buys stock with the balance of insurance proceeds. Allison is a calendar year taxpayer. a. By what date must Allison make the new investment to qualify for the nonrecognition election? b. Assuming that the replacement property qualifies as similar or related in service or use, what are Allison's realized gain, recognized gain, and basis in the replacement building? Allison's realized gain is $ and recognized gain is s Her basis in the new building is s

Answer 1

Answer: a) December 31, 2021 b) Allison's realized gain is $1, 113, 960 1 Recognized gain is $ 482, 716 Her basis in new building is $3,713,200 and Explanation, a) Allison has until December 31, 2021 (the end of the taxable year in which realizeô gain occured Plus two years), to make the new investment and qualify for the nonrecognition election. Allison's realized gain is $1,113,960 ($4,827, 160 insurance proceeds received - $3,713,200 adjustes basis of old building). .

Assuming that the replacement property qualities as similar or related in service or use, Allison's recognized gain is $182,716. she reinvested $482,116 less than the insurance proceeds received {$4,827,160 proceeds - $4,344, khu reinvested). Therefore the realizei gain is recognized to that extent- - Allison's basis in the new building is $3,713,200. This is the building cost of $4,344,444 less the postponed gain of $631,2un (realized gain o& $1,113,960 Less recognizeộ gain of $482,116)

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