The Smiths Owned and Occupied Their Principal Residence,with an Adjusted

question 98

Essay

The Smiths owned and occupied their principal residence,with an adjusted basis of $250,000,for ten years.The house is destroyed by a tornado and the Smiths receive insurance proceeds of $800,000.Six months later,they purchase another residence for $850,000.
a.What is the amount of gain the Smiths must recognize?
b.What is the basis of the new residence?

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Definitions:

First Quarter

Refers to the first three months of a fiscal or calendar year (January to March), often used in financial reporting and analysis.

Finished Goods

Items that have been fully made but remain unsold or not delivered to the final consumer.

First Quarter

It refers to the first three months of a company's fiscal year (January, February, and March in a calendar year), often used in financial reporting.

Sales

Transactions involving the exchange of goods or services for money or other compensation.