Honre Corporation's warehouse and Filip Company's office building were located side by side until a fire raced through both structures, completely destroying them. The warehouse has an adjusted basis of $250,000 and a fair market value (FMV) before the fire of $500,000. Honre Corporation's fire insurance policy covers the FMV and pays $500,000. Honre decides not to replace the warehouse because it already has adequate storage space. Filip Company's office building has an adjusted basis of $400,000 and an FMV before the fire of $750,000. Filip's fire insurance covers a maximum structural loss of only $650,000 and pays that amount. Filip uses the $650,000 to build a new office building on its old site.
Honre Corporation has a taxable transaction. Filip Company does not. Compare these tax results using only the attributes and commonalities of nonrecognition transactions.