Question

1) Oscar Olson, single, purchased a residence on February 19, 2017, for $170,000. On September 7, 2019, a tornado completely destroyed his home. The home was insured for its replacement value, and homes in Oscar’s area had appreciated greatly. He received proceeds of $400,000.

               a. How much does Oscar exclude and recognize?

               b. If Oscar instead had received proceeds of $525,000, how much gain would be excluded and recognized? How much of a replacement residence would have to be purchased in order to exclude or defer all gain realized?

2) Debbie Davis and Elizabeth Engels exchanged like-kind business buildings. Debbie had an adjusted basis of $120,000 in her property (fair market value is $150,000). Elizabeth's property had an adjusted basis of $90,000 and a fair market value of $105,000, and Elizabeth gave Debbie $45,000 in cash. Determine Debbie's and Elizabeth's realized gain or loss, recognized gain or loss, and the basis in their new property.

3) Sidney Southern owned a restaurant which was condemned on November 20, 2018. On January 15, 2019, he received a condemnation award of $280,000. The adjusted basis of his restaurant was $120,000, He purchased another restaurant on March 17, 2019, for $300,000.

a. What is Sidney's lowest recognized gain or loss? What is his basis in the restaurant?

b. What would be the answer to (a) if the replacement cost was $240,000?

c. What is the last possible date on which Sidney could have purchased qualified replacement property?

d. What is the answer to (c) if the restaurant had been destroyed by fire instead of being condemned?

Answer 1

What is Sidney's lowest recognized gain or loss?

Gain 230000 (400000-170000)

What is his basis in the restaurant?

the basis of an asset is its cost to you. 170000

What would be the answer to (a) if the replacement cost was $240,000?

Gain is nil (400000-230000-170,000)

What is the last possible date on which Sidney could have purchased qualified replacement property?

With in 12 months from date of sale

What is the answer to (c) if the restaurant had been destroyed by fire instead of being condemned?

With in 12 months from date of sale