Bria's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane.Due to a 30% co-insurance clause, Bria receives insurance proceeds of $192,500 two months after the date of the loss.One month later, Bria uses the insurance proceeds to purchase a new office building for $275,000.Her adjusted basis for the
new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Question

Quizplus · Accepted Answer

The adjusted basis for the new building would be $275,000 (the purchase price), not $307,500. The postponed loss of $32,500 would be added to the adjusted basis of any future property Bria may purchase.

Bria's Office Building (Basis of $225,000 and Fair Market Value