Grantly Seafood is a calendar year taxpayer. In 2018, a hurricane destroyed three of Grantly's fishing boats with a $784,500 aggregate adjusted tax basis. On October 12, 2018, Grantly received a $1 million reimbursement from its insurance company. On May 19, 2019, Grantly purchased a new fishing boat for $750,000. Compute Grantly's recognized gain or loss on the involuntary conversion and its tax basis in the new boat.

Question

Quizplus · Accepted Answer

Grantly's realized gain is $215,500 ($1,000,000 - $784,500 adjusted basis). Because Grantly failed to reinvest $250,000 of the reimbursement in replacement property, it must recognize the entire gain.

Grantly Seafood Is a Calendar Year Taxpayer