Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2019. Sam is a calendar year taxpayer. He receives a condemnation award of $875,000 on March 1,2020. He builds a new office building at a cost of $845,000 that is completed and paid for on December 31, 2022. What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?
A) $0; $720,000.
B) $30,000; $750,000.
C) $30,000; $845,000.
D) $150,000; $750,000.
E) None of these.

Question

Quizplus · Accepted Answer

Sam's recognized gain is $30,000, which is the difference between the condemnation award ($875,000) and the adjusted basis ($750,000). The basis for the new office building is the cost of the new building ($845,000) minus the deferred gain ($125,000), resulting in a basis of $750,000.

Sam's Office Building with an Adjusted Basis of $750,000 and a Fair