Sidney, a calendar year taxpayer, owns a building (adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business. The building is destroyed by fire on December 12, 2017, and two weeks later he receives insurance proceeds of $600,000. Due to family ties, Sidney decides to move to Columbia, SC. He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2, 2018. By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

Question

Quizplus · Accepted Answer

This is correct according to the rules of § 1033, which allows taxpayers to postpone gain recognition if they reinvest the proceeds from the involuntary conversion of property into similar property. In this scenario, Sidney reinvested all the insurance proceeds in a new building for his retail computer sales business, and therefore, he has no recognized gain and a basis in the new building of $450,000.

Sidney, a Calendar Year Taxpayer, Owns a Building (Adjusted Basis