Williams Owned an Office Building (But Not the Land) That

Essay

Williams owned an office building (but not the land) that was destroyed by a fire. The building was insured and he has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building. Williams may replace the building. He had taken $145,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year. What is final nature of his gain for the
year and what tax rate(s) apply to the gain if:

a. He does reinvest the insurance proceeds.

b. If he does not reinvest the insurance proceeds.