Question

Fenwick operates a grocery store and his retail building was completely destroyed by a hurricane on August 22, Year 10. The fair market value of the building before the hurricane was $1,200,000 with an adjusted basis of $800,000. His insurance company reimbursed him $1,200,000 of December 2, Year 10. When is the last date that Fenwick can replace this building with qualifying property and avoid recognizing gain from this transaction.A. December 31, 2013.B. August 22, 2015.C. December 31, 2015.D. December 31, 2016.

Answer 1

Answer:

D. December 31, 2016.

Explanation:

Fenwick company had retail building which was destroyed on August 22, hurricane. The hurricane was so intense that complete building was damaged. The building already had an insurance policy due to which the fair value of the building is reimbursed. Fenwick can claim the fair value of the building from an insurance company. If he replaces the building with qualifying building on the date he gets the insurance claim he will not be required to record gain of the transaction.