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

question 51

Multiple Choice

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2018. On January 11,2019, 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, 2019, 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:

Lease Modification

Changes made to the terms of a lease agreement, often involving negotiations between the lessee and lessor.

Bound Agreement

A legally binding contract or arrangement between parties.

Illusory Promise

An agreement that lacks a true commitment from the promisor, making it unenforceable as a contract.

Accord

An agreement between parties to settle a dispute or obligation.