Teresa’s manufacturing plant is destroyed by fire. The plant has an adjusted basis of $270,000, and...
Teresa’s manufacturing plant is destroyed by fire. The plant has an adjusted basis of $270,000, and Teresa receives insurance proceeds of $410,000 for the loss. Teresa reinvests $420,000 in a replacement plant within 2 years of receiving the insurance proceeds.
a.) Calculate Teresa’s recognized gain if she elects to utilize the involuntary conversion provision.
b.) Calculate Teresa’s basis in the new plant.
Homework Answers
a) A realized gain on the involuntary conversion of property occurs when the taxpayer receives the proceeds in excess of his or her adjusted basis.
involuntary conversion gain is not recognized if the proceeds or payments are reinvested in qualified replacement property within the required time period and the taxpayer makes the proper election.
the involuntary conversion gain should be 0 because it only applies to gains not losses and you would be doing 410000 - 420000 = -10000 which gives you a loss
b) Teresa's basis in the new plant:-
$ 270000-$410000+$420000= $280000.
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