Question

A barn with an adjusted basis of $125,000 was destroyed by a tornado on March 5, 2018. On May 15, 2018, the insurance company paid the owner $150,000. The owner reinvested $170,000 in another barn. What is the basis of the new barn if non-recognition of gain from an involuntary conversion is elected?

Answer 1

Answer:

$145,000

Explanation:

Data provided in the question:

Adjusted basis of the barn = $125,000

Amount paid by the insurance company = $150,000

Amount reinvested in another barn = $170,000

Now,

Basis of the new barn

= Adjusted Basis of old barn + Additional amount spend on new barn in excess of amount paid by insurance company

= $125,000 + [ $170,000 - $150,000 ]

= $125,000 + $20,000

= $145,000