Theresa Owns a Yacht That Is Held for Personal Use

question 98

Essay

Theresa owns a yacht that is held for personal use and has a $100,000 basis.The yacht is destroyed by a storm and Theresa collects $120,000 from the insurance company.She purchases a new $150,000 yacht for personal use and elects to defer any gain on the transaction.What is the basis of the new yacht?

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Definitions:

Utility

Represents the satisfaction or benefit a consumer receives from consuming a product or service.

Transitivity

In decision theory and economics, transitivity refers to the logical consistency in preference ordering such that if Option A is preferred over B, and B over C, then A should be preferred over C.

Indifference Map

A collection of indifference curves that represent a consumer’s preferences for various combinations of goods, illustrating how those preferences change with different bundles.

Marginal Rate

The marginal rate typically refers to the amount of change in one variable due to a unit change in another, commonly used in economics to describe rates of substitution or transformation.