Sidney, a calendar year taxpayer, owns a building (adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business. The building is destroyed by fire on December 12, 2019, and two weeks later he receives insurance proceeds of $600,000. Due to family ties, Sidney decides to move to Columbia, SC. He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2020. By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost -
$150,000 postponed gain).

Question

Quizplus · Accepted Answer

Sidney can elect under § 1033 to defer recognition of the gain from the involuntary conversion of his business property by reinvesting the insurance proceeds into similar property. His basis in the new property is correctly calculated as the cost of the new property minus the deferred gain.

Sidney, a Calendar Year Taxpayer, Owns a Building (Adjusted Basis