A fire completely destroyed a warehouse owned by Della Company and used for nine years in its shipping business. Della's adjusted basis in the warehouse was $748,200, and its replacement value was $1 million. Unfortunately, the warehouse was uninsured. As a result of the destruction, Della recognizes:

Question

Quizplus · Accepted Answer

Della can recognize an ordinary loss equal to its adjusted basis in the warehouse, which is $748,200. Section 1231 would only apply if the property was used in a trade or business and held for more than one year before being destroyed. Since the warehouse was owned and used by the company for nine years, it meets those requirements, but the loss still qualifies as an ordinary loss. The replacement value is not relevant in this case, as it only determines the amount needed to replace the property, not the tax treatment of the loss.

A Fire Completely Destroyed a Warehouse Owned by Della Company