In June, a fire completely destroyed office furniture owned by W&S Inc. W&S's adjusted tax basis in the furniture was $17,040. W&S received a $15,000 reimbursement from its property insurance company, and on August 8, it paid $16,000 to replace the furniture. Compute W&S's recognized gain on loss on the involuntary conversion and its tax basis in the new furniture.

Question

Quizplus · Accepted Answer

The amount realized from the involuntary conversion is $15,000 (the insurance reimbursement). W&S's adjusted tax basis in the furniture was $17,040. Therefore, there is a recognized loss of $2,040 ($17,040 - $15,000). The cost of the new furniture is $16,000. Since the insurance reimbursement and the replacement cost are less than W&S's adjusted tax basis in the destroyed furniture, W&S does not have to recognize any gain. The tax basis in the new furniture is $16,000.

In June, a Fire Completely Destroyed Office Furniture Owned by W&S