Red Company had an involuntary conversion on December 23, 2018. The machinery had been acquired on April 1, 2016, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:
A) $10,000 § 1231 loss.
B) $10,000 § 1245 recapture gain.
C) $4,200 casualty loss.
D) $4,200 § 1231 loss.
E) None of the above.

Question

Quizplus · Accepted Answer

The adjusted basis of the machinery was $14,200 and the insurance proceeds were $10,000, resulting in a casualty loss of $4,200.

Red Company Had an Involuntary Conversion on December 23, 2018