Jared, a fiscal year taxpayer with a August 31 year-end, owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24, 2019.If the insurance settlement was $950,000 (received March 1, 2020), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?
A)December 31, 2019.
B)August 31, 2020.
C)December 31, 2021.
D)August 31, 2022.

Question

Quizplus · Accepted Answer

Under § 1033 of the Internal Revenue Code, a taxpayer has up to four years after the close of the first taxable year in which any part of the gain is realized to replace the property and qualify for nonrecognition of gain. Since Jared's property was destroyed in December 2019 and he is a fiscal year taxpayer with a year-end of August 31, the first taxable year in which the gain was realized closed on August 31, 2020. Therefore, Jared has until August 31, 2024, to replace the office building. However, since this option is not available, the closest correct answer provided is August 31, 2022, which is within the allowable replacement period.

Jared, a Fiscal Year Taxpayer with a August 31 Year-End