Kareem's office building is destroyed by fire on April 11, 2018. Settlement is reached with the insurance company on November 1, 2018 when he receives a check for $900,000. The property had recently been appraised for $920,000. Kareem's adjusted basis in the building was $800,000.
Kareem's office building is destroyed by fire on April 11, 2018. Settlement is reached with the insurance company on November 1, 2018 when he receives a check for $900,000. The property had recently been appraised for $920,000. Kareem's adjusted basis in the building was $800,000.
a. Realized gain = $100,000 ($900,000 insurance proceeds less $800,000 adjusted basis).
b.
(1) To avoid any gain recognition, Kareem must re-invest the full $900,000 proceeds in qualifying property.
(2) The replacement property must also be an office building.
(3) The replacement deadline will be December 31, 2020.
c.
(1) To avoid any gain recognition, Kareem must re-invest the full $900,000 proceeds in qualifying property (same as in the case of a casualty).
(2) The replacement property must satisfy the like-kind requirements so he must re-invest in real property used for business or investment purposes, but not necessarily an office building.
(3) The replacement deadline will be December 31, 2021.
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