Harry owns equipment ($50,000 basis and $38,000 FMV)and a building ($140,000 basis and $156,000 FMV),which are used in his business.The two assets were acquired five years ago.Both the equipment and the building are destroyed in a fire,and Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is
A)the involuntary conversions are treated as ordinary gains and losses.
B)the involuntary conversions are treated as Sec.1231 gains and losses.
C)the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain.
D)the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain.

Question

Quizplus · Accepted Answer

Involuntary conversions of business property are generally treated as Section 1231 gains and losses, which can result in capital gain treatment if the gains exceed the losses.

Harry Owns Equipment ($50,000 Basis and $38,000 FMV)and a Building