Elaine Owns Equipment ($23,000 Basis and $15,000 FMV)and a Building

question 30

Essay

Elaine owns equipment ($23,000 basis and $15,000 FMV)and a building ($136,000 basis and $148,000 FMV),which are used in her business.Elaine uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Elaine collects insurance proceeds equal to the assets' FMV.
a.What is the tax treatment of these two transactions?
b.Assume that Elaine is only able to collect $3,000 from the insurance company for the equipment loss.What is the tax treatment of the two transactions (assume the basis and insurance reimbursement remain the same for the building).

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Definitions:

Initial Price

The starting price set for a product or service when it is first introduced to the market.

Publishers' Retail List Price

The price suggested by publishers that retailers should charge for their books.

Distributors

Intermediaries that buy products from manufacturers or wholesalers and sell them to retailers or directly to consumers.

Commission

A fee paid to an agent or employee for facilitating a sale or transaction.