Kristi Had a Business Building Destroyed in an Earthquake

question 31

Essay

Kristi had a business building destroyed in an earthquake. The old building was purchased for $259,500, and $81,900 of depreciation deductions had been taken. Her insurance proceeds were $554,750. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $621,900. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

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Definitions:

Business Judgment Rule

A legal principle that shields corporate directors, under certain conditions, from liability for decisions that harm the company if the decisions were made in good faith and with due diligence.

Fiduciaries

Individuals or entities that hold a legal or ethical relationship of trust with one or more parties, often in financial matters.

Shareholder Approval

A process in which shareholders vote on key corporate actions or decisions, often required for mergers, acquisitions, and other significant matters.

Liability of Directors

Legal responsibility held by company directors for actions or decisions made in the course of carrying out their duties.