Edith's Manufacturing Plant Is Destroyed by Fire on the Afternoon

question 55

Essay

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3, 2017. The adjusted basis is $800,000. The insurance company offers a settlement of $700,000. After protracted negotiations, Edith receives $825,000 on June 9, 2018. Edith is a fiscal year taxpayer whose tax year ends on June 30th. What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

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Definitions:

Net Present Value

A valuation method that calculates the present value of expected future cash flows minus initial investment, used to assess investment opportunities.

Lockbox System

A service provided by banks to companies for the receipt of payment from customers, under which the payments are directed to a special post office box instead of the company’s corporate address.

Money Market Securities

Short-term financial instruments, typically liquid and with high credit quality, traded in the money market involving assets like treasury bills, commercial paper, and certificates of deposit.

Collection Time

Refers to the average period it takes for a business to receive payments owed by its customers after a sale has been made.