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:

WTO

Short for World Trade Organization, an international body aimed at promoting and facilitating free trade by reducing tariffs and other trade barriers.

Tariff

A tax or duty to be paid on a particular class of imports or exports, used by governments to regulate trade.

Normal Trade Relations

A GATT principle of trade law which requires that WTO member states treat like goods coming from other member states on an equal basis.

GATT

General Agreement on Tariffs and Trade, a multilateral treaty aimed at reducing global barriers to trade and promoting international commerce.