Patty's Factory Building, Which Has an Adjusted Basis of $475,000

Essay

Patty's factory building, which has an adjusted basis of $475,000, is destroyed by fire on April 8, 2018. Insurance proceeds of $500,000 are received on June 1, 2018. She has a new factory building constructed for $490,000, which she occupies on October 1, 2018. Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.