An apartment building with an adjusted basis of $500,000 was destroyed by a tornado on April 30,2014.On May 10,2014,the insurance company paid the owner $695,000.The owner reinvested $570,000 in a new apartment complex.What is the basis of the new complex if non-recognition of gain from an involuntary conversion is elected?

Question

Quizplus · Accepted Answer

When non-recognition of gain from an involuntary conversion is elected, the basis of the new property is the cost of the new property ($570,000) minus the gain not recognized. The gain not recognized is the insurance proceeds ($695,000) minus the cost of the new property ($570,000), which is $125,000. Therefore, the basis of the new complex is $500,000 ($570,000 - $125,000).

An Apartment Building with an Adjusted Basis of $500,000 Was