Mitchell, a calendar year taxpayer, is the sole proprietor of a fast-food restaurant. His adjusted basis for the building and the related land is $450,000. On March 4, 2015, state authorities notify Mitchell that his property is going to be condemned so that the highway can be widened. On June 20, Mitchell’s property is officially condemned, and he receives an award of $625,000. Because Mitchell’s business has been successful in the past, he would like to reopen the restaurant in a new location.
a. What is the earliest date Mitchell can acquire a new restaurant and qualify for § 1033 postponement?
b. On June 30, Mitchell purchases land and a building for $610,000. Assuming that he elects postponement of gain under § 1033, what is his recognized gain?
c. What is Mitchell’s adjusted basis for the new land and building?
d. If he does not elect § 1033, what are Mitchell’s recognized gain and adjusted basis?
e. Suppose he invests the $625,000 condemnation proceeds in the stock market on June 30. What is Mitchell’s recognized gain?
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