Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30,2014.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1,2015.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31,2017.What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?
A)$0;$720,000.
B)$30,000;$750,000.
C)$30,000;$845,000.
D)$150,000;$750,000.
E)None of these.

Question

Quizplus · Accepted Answer

Sam's recognized gain is the difference between the condemnation award and the adjusted basis, which is $875,000 - $750,000 = $125,000. However, since he reinvested $845,000 in a new building, he can defer $95,000 of the gain ($875,000 - $845,000). Thus, the recognized gain is $30,000 ($125,000 - $95,000). The basis for the new building is the cost of the new building minus the deferred gain, which is $845,000 - $95,000 = $750,000.

Sam's Office Building with an Adjusted Basis of $750,000 and a Fair