Sidney, a calendar year taxpayer, owns a building (adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business. The building is destroyed by fire on December 12, 2018, and two weeks later he receives insurance proceeds of $600,000. Due to family ties, Sidney decides to move to Columbia, SC. He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2019. By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost -$150,000 postponed gain).

Question

Quizplus · Accepted Answer

This statement is true. By electing § 1033, Sidney is able to postpone the gain from the destroyed building and invest the insurance proceeds in a new building without recognizing any gain. Additionally, his new basis in the building is equal to the adjusted basis of the destroyed building, which is $450,000.

Sidney, a Calendar Year Taxpayer, Owns a Building (Adjusted Basis