Question

In the current year, Keyaki Construction Company exchanged a building, which cost $530,000 and had accumulated depreciation of $160,000, for a new building having a fair market value of $650,000. In connection with the exchange, Keyaki paid $280,000 in cash. What is the tax basis of the new building?

Answer 1

Answer:

The tax basis of the new building amounts to $650,000

Explanation:

The tax basis of the new building is computed as:

Tax basis = Old building - Accumulated depreciation + Cash paid

Where

Old building is $530,000

Accumulated depreciation is $160,000

Cash paid is $280,000

Putting the values above:

= $530,000 - $160,000 + $280,000

= $370,000 + $280,000

= $650,000