Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.Assuming the proper election is made to defer gain,Stephanie's basis in the new building will be
A)$175,000.
B)$180,000.
C)$200,000.
D)$210,000.

Question

Quizplus · Accepted Answer

When a taxpayer defers gain under the involuntary conversion rules, the basis in the new property is the cost of the new property minus the deferred gain. The deferred gain is the insurance proceeds ($200,000) minus the adjusted basis of the old property ($175,000), which is $25,000. The cost of the new property is $180,000, so the basis in the new property is $180,000 - $25,000 = $155,000. However, since the question asks for the basis assuming the proper election is made to defer gain, the basis in the new building is the same as the adjusted basis of the old building, which is $175,000.

Stephanie's Building,which Was Used in Her Business,was Destroyed in a Fire.Stephanie's