Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2018. Sam is a calendar year taxpayer. He receives a condemnation award of $875,000 on March 1, 2019. He builds a new office building at a cost of $845,000 which is completed and paid for on December 31, 2021. 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 the above.

Question

Quizplus · Accepted Answer

Sam's recognized gain is $30,000, which is the difference between the condemnation award ($875,000) and the cost of the new building ($845,000). The basis for the new office building is the adjusted basis of the old building ($750,000) because he reinvested the proceeds to minimize gain recognition.

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