Company X purchased an office building for $2.9 million in March Yr 1. Company X spent an additional $250k to install a new air conditioning and hearing system. On Dec 31, Year 10, when the office building had a fair market value of $3,375,000 and allowable MACRS (tax accounting term) depreciation since Acquisition would have been $775,000, Company X exchanged the building for a warehouse owned by a partnership. The fair market value of the warehouse was $3.2 million and its basis to the partnership was $2 M. In exchange, the partnership assumed a $175k liability on the office building. Company X should report gain on the exchange as (TAX ACCOUNTING AND IRS - internal revenue service - TAX LAW CODES)

A $175k sec 1231 gain

B $175k sec 1250 gain; $825k sec 1231 gain

C $175k sec 1250 gain

D $218,703 sec. 1250 gain; $781,297 sec 1231 gain