Vanessa's personal residence was condemned, and she received a condemnation award of $475,000.Vanessa had owned and occupied the residence for 15 years.The adjusted basis in the residence at the time of condemnation was $200,000.Vanessa used part of the condemnation proceeds to purchase a new residence for $210,000.What is Vanessa's recognized gain or loss and her basis in the new residence?
A)$0; $185,000.
B)$0; $210,000.
C)$15,000; $200,000.
D)$25,000; $210,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The recognized gain or loss is calculated as the condemnation award ($475,000) minus the adjusted basis ($200,000), which equals $275,000 of recognized gain.
However, since Vanessa used part of the proceeds to purchase a new residence, she can defer the recognition of the gain under the rules of Section 1033(a).
The basis of the new residence is calculated as the cost of the new residence ($210,000), minus the amount of deferred gain ($15,000 = $275,000 - [$475,000 - $210,000]), which equals $195,000.
Therefore, Vanessa has a recognized gain of $15,000 ($275,000 - $260,000 [adjusted basis in new residence]) and a basis of $200,000 in the new residence.

Vanessa's Personal Residence Was Condemned, and She Received a Condemnation