An Apartment Complex Owned by H, a Calendar Year Individual

question 11

Multiple Choice

An apartment complex owned by H, a calendar year individual taxpayer, was destroyed in a landslide on January 12, 19X6.The apartments (including the land) had cost $600,000 and had an adjusted basis of $250,000.The insurance company paid $445,000 for the land and damaged buildings on March 12, 19X6.Which of the following is not necessarily true?

• A)To be eligible for deferral, H must purchase other real estate to be used as rental property.
• B)To be eligible for deferral, H must reinvest by March 12, 19X8.
• C)In order to avoid recognizing any gain on this insurance settlement, H must reinvest at least $445,000.
• D)Even if H reinvests, the $195,000 gain can be recognized, and the basis in the replacement will be its full cost.

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Definitions:

Long Run

A period during which all factors of production and costs are variable, allowing full adjustment to any change.

Fixed Cost

Describes expenses that do not change with the level of production or business activity, such as rent, salaries, and insurance premiums.

Variable Cost

Costs that change in proportion to the good or service that a business produces.

Total Cost

The complete cost of production, including both fixed and variable costs.