Walt’s business building (adjusted basis of $50,000) is destroyed by fire on October 5, 2020. On November 17, 2020, he receives insurance reimbursement of $100,000 for the loss. Walt invests $80,000 in a new building and uses the other $20,000 of insurance proceeds to pay off credit card debt. Please answer the following questions in this scenario:

1. What is the last day for Walt to reinvest in new property under Section 1033?

2. What is the amount of Walt’s realized gain?

3. What is the amount of Walt’s recognized gain?

4. What is Walt’s basis in the new building.

5. Is the deferral of any gains mandatory or elected?

Now assume the amount of the insurance reimbursement is $45,000 instead for the questions below.

6. What is Walt’s realized loss? What is his recognized loss?

Tax Planning & Research Question:

For this question, you will be graded based on effort. Based on all the information learned in class so far and any reliable internet sources you may find, please write a 1-2 page report (the format of the report is up to you) that addresses the following questions:

Should taxpayers generally use property that have unrealized gains or property that have unrealized losses as gifts?
How might gifts of property be used in family tax planning?
If the donor anticipates that the done will sell the property upon receipt, how should the donor gift the done if the property has unrealized gains vs unrealized losses?
Should taxpayers generally distribute appreciated property as inheritance or property that would result in losses?
Is it better to transfer appreciated property as an inheritance or as a gift?
Are there any circumstances under which a taxpayer would elect not to use Section 121 exclusions on the sale of a home?
If a taxpayer owns multiple homes, is there anything they can do to get the Section 121 exclusion on all the homes?

Answer rating: 100% (QA)

1 The last day for Walt to reinvest in new property under section 1033 is within two year... View the full answer