Walter experienced two significant losses in 20x1. First, his home was destroyed in a fire and he received $600,000 insurance proceeds. His adjusted basis in the home was $800,000 at the date he received the proceeds.

Second, his restaurant was completely destroyed by an earthquake. Unfortunately, he didnt have any insurance. His adjusted basis in and the fair market value of the restaurant was $400,000 on the date of the earthquake.

Walter has owned both properties for many years and the two losses represent the only property transactions that Walter was involved in for the taxable year.

Assume the same facts provided in Question 17, except that when Walters home was destroyed in the fire he received $1.2 MM insurance proceeds. His adjusted basis in the home was $800,000 at the date he received the proceeds. The facts regarding the restaurant loss remain the same.

Which of the following statements is correct regarding the two transactions involving the home and restaurant?

Select one:

a.

Because the firepot gain exceeds the firepot loss, the gain and loss become a hotchpot gain and loss.

b.

Because the casualty gain exceeds the casualty loss, the gain and loss are treated as ordinary gain and loss.

c.

Because the gain exceeds the loss, the gain and loss are treated as long-term capital gain and loss.

d.

Because the gain exceeds the loss, the gain and loss are treated as 1231 hotchpot capital gain and loss subject to 1231(c ) recapture.

e.

None of the above.