Edna Mode’s textile factory was destroyed when the Underminer’s drill-tank lurch

Question

Edna Mode’s textile factory was destroyed when the Underminer’s drill-tank lurched out of control and collapsed the building. Assume Edna’s basis in the factory at the time is the same as was calculated in the prior question. The FMV of the building at the time of the destruction was $425,000. Edna receives insurance proceeds of $390,000. Edna constructs a replacement factory within one year of the original factory’s destruction at a cost of $450,000.

a.       What gain or loss will Edna realize and recognize?

b.      What is the basis of the new factory building?

Explanation / Answer

Fmv value = 425000

Relaised value = 390000

loss = 35000

B) New factroy building = 390000 (realised value)

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