The answer to the question I posted was C. I thought it was D. Here's the question again for reference:
A $50,000 insurance recovery on a small warehouse destroyed by fire was received. It was used in the business and depreciated using the straight-line method. Its adjusted tax basis at the date of the fire was $52,400. A new warehouse was rebuilt at a cost of $60,000.
What is the basis of the new warehouse?
a) $52,400
b) $57,600
c) $60,000
d) $62,400
Here's the explanation: The realized loss was fully recognized, so the basis of the new warehouse is its cost of $60,000.
Answer B is incorrect because Subtracting the recognized loss from the cost of the new warehouse results in $57,600.
Answer D is incorrect because Adding the recognized loss to the cost of the new warehouse results in $62,400.
Apparently, losses are recognized even if proceeds are reinvested. So what it seems like they are doing is 52400-50,000= 2400 recognized loss and the basis in the new warehouse is cost which equals 60,000
.