Kareem's Office Building Is Destroyed by Fire on April 11,2017

question 48

Essay

Kareem's office building is destroyed by fire on April 11,2017.Settlement is reached with the insurance company on November 1,2017 when he receives a check for $900,000.The property had recently been appraised for $920,000.Kareem's adjusted basis in the building was $800,000.
a.What is Kareem's realized gain or loss?
b.Assume Kareem wishes to defer the maximum amount of gain.Indicate:
(1)the minimum amount that must be spent on a new property.
(2)any restrictions on the new property in order for it to qualify.
(3)the deadline for placing the new property in service.
c.Assume that instead of a fire,the state forces Kareem to sell the property.Indicate how your responses to part b would differ.

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Definitions:

AMT Depreciation Adjustment

Adjustments for depreciation that are required when calculating the Alternative Minimum Tax, a parallel tax system designed to ensure that certain taxpayers pay a minimum amount of tax.

7-year Property

Refers to assets that have a recovery period of 7 years under the Modified Accelerated Cost Recovery System for depreciation.

AMT Purposes

AMT purposes relate to the calculation for the Alternative Minimum Tax, a supplemental income tax required in addition to baseline income tax for certain individuals, corporations, estates, and trusts.

AMT Depreciation Adjustment

Adjustments made for alternative minimum tax purposes, recalculating depreciation based on specific AMT rules.