I have tried by best to solve this question .
Gwen owned a duplex and lived in one-half. The other half was rental property. The cost of the property was $80,000, of which $70,000 was allocated to the building and $10,000 to the land. During the current year, the property was condemned by the city. Up to that time, she had allowed/allowable depreciation of $23,000. The city paid Gwen $70,000. She bought another duplex for $85,000. Gwen lived in one-half, and the other half is a rental. What is the basis of the replacement property?
A. $62,000
B. $67,000
C. $72,000
D. $85,000
answer: B = 67,000
1)Since there are two units to the duplex, the calculations must be divided in half between the personal residence and the rental property.
2)The depreciation does not reduce the basis of the residence portion because it is attributed to the rental unit only.
3) If your net condemnation award < adjusted basis, you have a loss. If your loss is from property you held for personal residence use, you cannot deduct it. You must report any deductible loss in the tax year it happened.
4) If your net condemnation award > adjusted basis of the condemned property, you have a gain. You can postpone reporting gain from a condemnation if you buy replacement property.
85000 replacement –gain 18000 = 67000 .
——————————————————————–Resi- dential ——————– business
Part Part
1) Condemnation award received —————————-70000 ———————-35000
2) Minus: Legal expenses,0 ———————————–0 ———————————-0
3) Net condemnation award ——————————35000 ———————————-35000
4) Adjusted basis:
½ of original cost, $80000 ———————————-40000 ————————–40000
Total ——————————————————————-40000 ————————-40000
5) Minus: Depreciation ———————————————————————————–23,000
6) Adjusted basis, business part ———————————————————————— 17000
7) (Loss) on residential property -5000
8) Gain on business ————————————————————————————–18000
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