The Smiths Owned and Used Their Principal Residence,with an Adjusted

question 7

Essay

The Smiths owned and used their principal residence,with an adjusted basis of $250,000,for ten years.The house is destroyed by a tornado and the Smiths receive insurance proceeds of $800,000.Six months later,they purchase another residence for $850,000.
a.What is the amount of gain the Smiths must recognize?
b.What is the basis of the new residence?

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Definitions:

σ

The symbol representing the standard deviation of a population, indicating the dispersion of data points from the mean in a population.

Normally Distributed

Characterizes a probability distribution with symmetry around its mean, illustrating that occurrences close to the mean are more common than those distant from the mean.

Standard Deviation

A measure of the dispersion or variability of a set of values, indicating how much the values deviate from the mean.

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