An Office Building with an Adjusted Basis of $320,000 Was

question 121

Multiple Choice

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2017. On January 11, 2018, the insurance company paid the owner $450,000. The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $410,000 in a new office building on February 12, 2018, that was smaller than the original office building. What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

• A)$0 and $320,000.
• B)$0 and $410,000.
• C)$40,000 and $320,000.
• D)$130,000 and 410,000.
• E)None of the above.

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Definitions:

Notice

A formal declaration or statement that informs parties of certain facts, obligations, or legal processes.

Partnership Firm

A business entity created when two or more individuals agree to share the profits and losses of a business venture.

Indemnified

Protected against loss, damage, or legal liability through a legal agreement or insurance.

Expenditures

Money spent or costs incurred in the course of conducting business or achieving a project.