Reference no: EM132530176

Question -

A. Rod had the following business casualty in 2019:

Decrease in fair market value due to casualty; $2,500

Adjusted basis; $500

Insurance reimbursement; $1,700

Holding period; 20 years

Calculate the amount and nature of Rod's gain or loss as a result of this casualty. Show supporting computations and explain your answer.

B. Lorreta has a manufacturing business. In the current year, her storage building is completely destroyed by fire and she receives $315,000 from her insurance company. She purchased the building for $300,000 20 years ago and has claimed depreciation of $85,000 using the straight-line method. In the following year, she purchases a new storage building at a cost of $295,000. Answer the following questions.

1. Calculate Lorreta's realized gain or loss.

2. Assuming Lorreta makes an election under the involuntary conversion provision, calculate Lorreta's recognized gain or loss?

3. Assuming Lorreta makes an election under the involuntary conversion provision, what is Lorreta's basis in the new building?