Reference no: EM132812860

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2018. Assume the individual is a calendar year taxpayer. On January 11, 2019, the insurance company paid the owner $450,000. The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $400,000 in a new office building on February 12, 2019, that was smaller than the original office building.

Problem A) What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

Problem B) If the taxpayer did not purchase the replacement property on February 12, 2009, how long would they have to purchase the replacement property in order to defer the gain?

Problem C) Assuming the taxpayer expects to be in a much higher marginal tax rate in future years, are there any options available to the taxpayer if he or she does not want to defer the gain?

Problem D) Would the taxpayer be permitted to recognize a gain or loss if the insurance proceeds had amounted to $300,000. If so, what is the amount of that gain or loss?