Jason's business warehouse is destroyed by fire.Because the insurance proceeds exceed the basis of the property, a gain results.If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.

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Quizplus · Accepted Answer

The statement is true. The wherewithal to pay concept allows for the deferral of gain recognition if insurance proceeds from a casualty loss are reinvested in similar property. In this case, since the insurance proceeds exceed the basis of the destroyed warehouse, a gain is realized. However, if Jason reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.

Jason's Business Warehouse Is Destroyed by Fire