Thieves stole computer equipment used by Ms. James in her small business. Ms. James' tax basis in the equipment was zero. One month after the theft, she received a $17,600 reimbursement from her casualty insurance company and used $14,850 to replace the computer equipment. She used the $2,750 remaining reimbursement to purchase a new desk for her office. Which of the following statements is false?

Question

Quizplus · Accepted Answer

Ms. James must recognize a $2,750 gain on the involuntary conversion because she did not reinvest the entire insurance reimbursement in qualified replacement property. Her basis in the new computer equipment is $14,850, not zero, because the basis of replacement property in an involuntary conversion is its cost. Her basis in the new desk is indeed $2,750, as it reflects the amount spent on it. Therefore, all the statements are true, making the claim that any of them is false incorrect.

Thieves Stole Computer Equipment Used by Ms