The building used in Manuel's business was condemned by the city of Mobile.Manuel received a condemnation award of $220,000.He paid $800 in lawyer's fees and $600 for an appraisal of the property.Manuel's adjusted basis in the building was $120,000.Manuel reinvests in similar property costing $200,000,and Manuel makes the proper election regarding the property.Manuel's basis in the new building is
A)$102,400.
B)$121,400.
C)$120,000.
D)$200,000.

Question

Quizplus · Accepted Answer

Manuel's adjusted basis in the condemned building was $120,000, and he received a condemnation award of $220,000. After deducting the lawyer's fees and the appraisal cost, his net award was $218,600 ($220,000 - $800 - $600 = $218,600). Since Manuel reinvested the entire net condemnation award of $218,600 in a similar property costing $200,000, he has $18,600 ($218,600 - $200,000) left over to be treated as taxable gain. Thus, Manuel's basis in the new building is $121,400 ($120,000 + $200,000 - $218,600 = $121,400).

The Building Used in Manuel's Business Was Condemned by the City