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AC553_W7_Solution11_42 - because there was no replacement...

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1 Problem 11-42 Solution Involuntary Conversions: Condemnation Herbert Harrison’s business property with an adjusted basis of $170,000 is condemned by the local authorities. He receives a $250,000 condemnation award. a. What is Herbert’s realized and recognized gain or loss? b. What is Herbert’s realized and recognized gain or loss if he purchases qualified replacement property for $220,000? What is Herbert’s basis in the new property? c. What is Herbert’s realized and recognized gain or loss if he purchases replacement property for $280,000? What is Herbert’s basis in the new property? d. What is Herbert’s realized and recognized gain or loss and the basis in the new property if the condemnation award is $150,000 and the replacement property costs $220,000? Solution: a. Herbert's realized gain is $80,000 ($250,000 1 $170,000). This would be recognized
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Unformatted text preview: because there was no replacement. b. (1) Herbert's realized gain is still $80,000 but his recognized gain is only $30,000 ($250,000 1 $220,000) assuming he makes the election. (2) His basis in the new property is $170,000 ($220,000, the cost of the replacement property, less $50,000, the gain not recognized). c. (1) Herbert's realized gain is still $80,000, but he has no recognized gain because the cost of the replacement property is greater than the condemnation award. (2) The basis of the new property is $200,000 ($280,000, the cost of the replacement property, less $80,000, the gain not recognized). d. Herbert's realized loss is $20,000, which is recognized and the basis of the new property is $220,000, the cost of the new property....
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