Reid Had a Business Building Destroyed in a Fire

question 95

Essay

Reid had a business building destroyed in a fire. The old building was purchased for $375,000 and $60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Reid found qualified replacement property which he acquired six months later for $390,000. What is the amount of Reid's realized gain and recognized gain?

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Definitions:

Depreciation Expense

The distribution of a physical asset's cost over its lifespan to account for depreciation or becoming outdated.

Sales

The total amount of goods or services sold by a company.

Best-Case Scenario

The most optimistic prediction of how a situation could unfold in the future.