Sally owned a clothing store which was condemned on November 25, 2017. On Januar

Question

Sally owned a clothing store which was condemned on November 25, 2017. On January 7, 2018, she received a condemnation award of $280,000.00. The adjusted basis of the clothing store was $120,000.00. She purchased another clothing store on March 18,2018 for $300,000.00 (a)What is Sally's recognized gain or loss? (b) What is Sally's basis in the clothing store? (c) What is the latest date that Sally can qualify for nonrecognition treatment? (d)What is the answer to (c) if the clothing store had been destroyed by fire instead of being condemned?

Explanation / Answer

A. Sally has $160,000 realized gain and, there is no recognized gain because the purchase price of the replacement property > the condemnation award. So recognised gain or loss =0

B. The basis of the new property is $140,000 ($300,000 cost of new property - gain not recognized of $160,000).

C. Sally has until December 31, 2021, to replace with qualified property because she has until three years after the end of the year in which the proceeds are realized in the case of a condemnation.

D. Sally has until December 31, 2020, to replace with qualified property because she has until two years after the end of the year in which the proceeds are realized in the case of a casualty.

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