Luke's offshore drilling rig with a $700,000 adjusted basis is destroyed by a hurricane. He collects $620,000 from the insurance company and purchases a new drilling rig for $600,000.a.What are the tax consequences of these transactions?b.What is the basis of the new rig?
What will be an ideal response?
| a. | A taxpayer may not defer recognition of loss from an involuntary conversion. Therefore the |
| b. | The basis of the new rig is $600,000. |
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