Grantly Seafood is a calendar year taxpayer. In 2016, a hurricane destroyed three of Grantly's fishing boats with a $784,500 aggregate adjusted tax basis. On October 12, 2016, Grantly received a $1 million reimbursement from its insurance company. On May 19, 2017, Grantly purchased a new fishing boat for $750,000. Compute Grantly's recognized gain or loss on the involuntary conversion and its tax basis in the new boat.

Question

Quizplus · Accepted Answer

Grantly's recognized gain is the insurance reimbursement ($1,000,000) minus the adjusted tax basis of the destroyed boats ($784,500), resulting in a $215,500 gain. The basis in the new boat is its purchase price, $750,000.

Grantly Seafood Is a Calendar Year Taxpayer