Stan owned machinery which had been acquired at a cost of $250,000. During 2020, the machinery was destroyed by fire. At that time, it had an adjusted basis of $200,000. The insurance proceeds awarded to Stan amounted to $270,000 and he immediately acquired qualifying replacement property for $240,000. What amount of gain should Stan report resulting from the involuntary conversion for 2020? a. $ 0 b. $70,000 c. $40,000 d. $30,000 e. None of the answers provided is correct ***The answer is D need to know how it was calculated only ? **

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A: 1.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.