Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2013. Sam is a calendar year taxpayer. He receives a condemnation award of $875,000 on March 1, 2014. He builds a new office building at a cost of $845,000 which is completed and paid for on December 31, 2016.

What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?

A. $0; $720,000.

B.$30,000; $750,000.

C. $30,000; $845,000.

D. $150,000; $750,000.

E. None of the above.

Question

Kylie

Business

17 September, 12:15

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2013. Sam is a calendar year taxpayer. He receives a condemnation award of $875,000 on March 1, 2014. He builds a new office building at a cost of $845,000 which is completed and paid for on December 31, 2016.

What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?

A. $0; $720,000.

B.$30,000; $750,000.

C. $30,000; $845,000.

D. $150,000; $750,000.

E. None of the above.

+5

Answers (1)

Know the Answer?

Raymond Fuller · Answer 1

correct option is B.$30,000; $750,000.

Explanation:

given data

adjusted basis = $750,000

a fair market value = $900,000

condemnation award = $875,000

solution

we know here that Amount realized is $875,000 and adjusted basis is $750,000

so here Realized gain is

Realized gain = $875,000 - $750,000

Realized gain = $ 125,000

so here we get Deficiency that is

Deficiency = $875,000 - $845,000

Deficiency = $30,000

and

so adjusted basis will be

adjusted basis = $875,000 - $125,000

so adjusted basis = 750,000