Chad owned an office building that was destroyed in a tornado. The adjusted basis of the building at the time was $890,000. After the deductible, Chad received an insurance check for $850,000. He used the $850,000 to purchase a new building that same year. How much is Chad’s recognized loss, and what is his basis in the new building?

Recognized Loss ..................... New Basis
a. $0 .............................................. $850,000
b. $0 .............................................. $890,000
c. $40,000 ..................................  $850,000
d. $40,000 .................................  $890,000