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Teresa's manufacturing plant is destroyed by fire. The plant has an adjusted basis of $270,000, and Teresa receives insurance proceeds of $410,000 for the loss. Teresa reinvests $420,000 in a replacement plant within 2 years of receiving the insurance proceeds. If an amount is zero, enter "0". a. Calculate Teresa's recognized gain if she elects to utilize the involuntary conversion provision. $ b. Calculate Teresa's basis in the new plant. $

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Answer:

A.  $0

B.  $280,000

Explanation:

a. $0.

Given that, she received insurance proceeds of $410,000 and reinvest $420,000

Hence, no gain is recognized since the amount of the insurance proceeds was fully reinvested.

b.

Given that, Teresa's basis is equal to the newly acquired property's cost reduced by the amount of the realized gain which is not recognized.

Hence, $420,000 - $140,000 = $280,000

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