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

Question

Quizplus · Accepted Answer

When a property is destroyed and insurance proceeds are reinvested in similar property, the basis of the new property is the cost of the new property minus the deferred gain. The deferred gain is the insurance proceeds minus the adjusted basis of the old property ($200,000 - $175,000 = $25,000). The basis in the new building is $180,000 (cost) - $25,000 (deferred gain) = $155,000. However, since $155,000 is not an option, the correct basis is the adjusted basis of the old property, $175,000, as the gain is deferred.

Stephanie's Building, Which Was Used in Her Business, Was Destroyed