Patty's Factory Building,which Has an Adjusted Basis of $325,000,is Destroyed

question 86

Essay

Patty's factory building,which has an adjusted basis of $325,000,is destroyed by fire on March 5,2011.Insurance proceeds of $475,000 are received on May 1,2011.She has a new factory building constructed for $450,000,which she occupies on October 1,2011.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:

Compounded Annually

Compounding annually is a method where interest is added to the principal sum at the end of each year, impacting the total interest earned or paid.

Objective

A goal or target that is aimed to be achieved, often used in planning and strategy contexts.

Compounded Semi-Annually

Interest on an investment that is calculated twice a year and added to the principal sum, affecting the total interest earned.

Economic Equivalent

A comparison of the economic attributes of two or more investment or financial scenarios to determine their relative value or financial impact.