Conrad corporation's warehouse was destroyed by a hurricane in September 2018. The estimated fair market value before the hurricane was $750,000 and Conrad's adjusted basis in the warehouse was $450,000. Insurance paid $725,000 as a result of this event. Conrad purchased a new Warehouse in December of 2018 for $700,000. What is Conrad's deductible loss or recognized gain?

Question

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Conrad's recognized gain is calculated as the insurance proceeds ($725,000) minus the adjusted basis ($450,000), resulting in a $275,000 gain. However, since Conrad reinvested in a new warehouse for $700,000, which is more than the insurance proceeds, the gain is deferred under the involuntary conversion rules, except for the $25,000 difference between the insurance proceeds and the new warehouse cost.

Conrad Corporation's Warehouse Was Destroyed by a Hurricane in September