RP owned residential real estate with a $726,000 adjusted basis that was condemned by City Q because it needed the land for a new convention center. RP received $1,028,000 condemnation proceeds for the real estate. Assume that RP would elect to defer gain recognition when possible.

a. Assume RP spent $269,000 of the proceeds to expand its inventory and the remaining $759,000 to purchase new residential real estate. Calculate RPs gain or loss realized, gain or loss recognized, and tax basis in the inventory and new real estate.

b. How would your answer to part a change if RPs basis in the condemned real estate were $906,000 rather than $726,000?

c. How would your answer to part a change if RP invested the entire condemnation proceeds plus an additional $132,000 cash in new residential real estate?

Assume RP spent $269,000 of the proceeds to expand its inventory and the remaining $759,000 to purchase new residential real estate. Calculate RPs gain or loss realized, gain or loss recognized, and tax basis in the inventory and new real estate.

Realized gain selected answer correct	$302,000 selected answer correct
Recognized gain selected answer correct	$269,000 selected answer correct
Basis in the inventory	$33,000 WRONG
Basis in the new real estate	$726,000selected answer correct