A barn with an adjusted basis of $125,000 was destroyed by a tornado on March 5,2017.On May 15,2017,the insurance company paid the owner $150,000.The owner reinvested $170,000 in another barn.What is the basis of the new barn if non-recognition of gain from an involuntary conversion is elected?
A)$0.
B)$120,000.
C)$145,000.
D)$170,000.

Question

Quizplus · Accepted Answer

According to the non-recognition rule for involuntary conversions (Section 1033), if the proceeds are reinvested in similar property within 2 years, the gain on the destroyed property can be deferred. Therefore, the basis of the new barn would be the adjusted basis of the destroyed barn ($125,000) plus the additional amount invested ($170,000 - $150,000 insurance proceeds = $20,000), for a total basis of $145,000. Choice C is the correct answer.

A Barn with an Adjusted Basis of $125,000 Was Destroyed