Involuntary Conversion
Response to the following problem:
Duffy & Co.'s warehouse, which had an adjusted basis of $1,100,000, was destroyed by fire. Duffy received $2,000,000 from the insurance company. Duffy immediately invested $1,800,000 in a new warehouse and elected to postpone as much of the gain as possible.
a. What is the amount of gain recognized for income tax purposes?
b. What is the basis of the new warehouse?