A warehouse used by Dirk Dumont in his business was condemned by the state. fte fair market value of the warehouse was $300,000; however, the state only awarded Dirk $250,000. Dirk's adjusted basis in the warehouse was $100,000. Dirk spent $75,000 to renovate an old barn that he owned in order to convert it to a warehouse, and he also purchased a new warehouse for $125,000. Both warehouses will be used to house the equipment previously held in the state condemned warehouse. What amount should Dirk report as gain or loss on the condemnation if an election is made under Code Sec. 1033?
A) ($100,000)
B) ($50,000)
C) $0
D) $50,000
E) $100,000

Question

Quizplus · Accepted Answer

$50,000. the amount of gain realized is $150,000 ($250,000 - $100,000) and the amount recognized is the extent to which the amount realized of $250,000 exceeds the cost of the new assets of $125,000 and $75,000.

A Warehouse Used by Dirk Dumont in His Business Was