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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