Mr. and Mrs. Snell own and live in a house, with an adjusted basis of $300,000, that was purchased in 1994. The house is destroyed by a tornado on March 10 of the current year, and the Snells receive insurance proceeds of $410,000. They purchase another residence for $480,000 four months later.
a. May they exclude the $110,000 gain, and if so, what is the basis of the residence purchased in July?
b. May they defer the $110,000 gain, and if so, what is the basis of the residence purchased in July?