Patty's Factory Building,which Has an Adjusted Basis of $475,000,is Destroyed

question 43

Essay

Patty's factory building,which has an adjusted basis of $475,000,is destroyed by fire on April 8,2015.Insurance proceeds of $500,000 are received on June 1,2015.She has a new factory building constructed for $490,000,which she occupies on October 1,2015.Assuming Patty's objective is to minimize the tax liability,calculate her recognized gain or loss and the basis of the new factory building.

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Definitions:

In The Money

refers to a financial term describing an option that has intrinsic value, meaning for a call option, the market price is above the strike price, and for a put option, the market price is below the strike price.

Put Option

A financial contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a certain time frame.

Option Holder

An individual or entity that has the rights, but not the obligation, to buy or sell an asset at a predetermined price before or at the expiration of a contract.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a certain time period.