Kristi had a business building destroyed in an earthquake. The old building was

Question

Kristi had a business building destroyed in an earthquake. The old building was purchased for $258,000 and $81,600 of depreciation deductions had been taken. Her insurance proceeds were $554,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $621,600. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Explanation / Answer

Realized gain= $554000( Insurance Proceeds)- $176400 (Adjusted Basis of property cost less depreciation, 258000-81600)=$377600

Recognized gain is lower of $377600 realized gain or the amount which is not reinvested in qualified property( whole amount $554000 is reinvested $554000-621600=0, so this amount is 0). So Recognized Gain=0

The basis of new property= Carryover of old building i.e $176400 and it is incresaed by new investment in building $67600 ($621600-554000=67600)= $176400+67600= $244000

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