Question

P's building, which is used in his business, is destroyed in a fire in the current year. P's adjusted basis in the building is $50,000 and its FMV is $103,000. P files an insurance claim and is reimbursed $100,000. In the same year, P invests $78,000 of the insurance proceeds in another business building. If Pelects to defer the gain, there will still be a recognized gain of $50,000 $0 $28,000 $22,000

Answer 1

1)Answer) d

a)Insurance proceeds=$100,000
Adjusted basis of old building=$50,000
1)Gain realized= Insurance proceed- Adjusted basis of old building
=100,000- 50,000=$50,000

2)Gain Recognized= Insurance proceeds-Insurance proceeds Reinvested
=100,000 - 78,000
=22,000

Gain Recognized=minimum of gain realized and gain recognized
=min(50000, 22,000= 22,000

Answer is $22,000

2)

Allowable home office deduction = (Home mortgage interest 12,000 + Property taxes 4,000 + Homeowner’s insurance 2,500 + Utilities 2,200)*20% + Depreciation on office portion of home 1,100

= 4140+1100

= $5240

These are all indirect expenses and a portion of it is deductible. Depreciation is fully deductible as it is for business portion only. Homeowner's insurance is deductible in special cases.