Mr. Smith acquires an office building for $7,000,000 and incurs $100,000 of acquisition costs. He obtains an interest-only mortgage for $3,000,000 and uses his own money for the rest. Tax records indicate the appraised value of the property is $1 million for the land and $3 million for the building ( i.e. 25%/75% ratio). 1. What is the basis of the property? 2. Of the total basis, how much is allocated to land? 3. How much is allocated to building? 4. What is the annual depreciation expense? After 3 full years, Smith sells the building for $8,000,000. He wishes to enter in a 1031 exchange transaction. 5. What is the gain on the sale of the asset? 6. How much cash is sent to the qualified intermediary? Smith buys a new building within the required time period for $9,000,000. He obtains a $4,000,000 mortgage for this asset. 7. What is the new basis of this replacement property? 8. If Smith obtained a $5,000,000 mortgage instead, what is the boot received on the transaction and what is the tax implication? Mr. Smith acquires an office building for $7,000,000 and incurs $100,000 of acquisition costs. He obtains an interest-only mortgage for $3,000,000 and uses his own money for the rest. Tax records indicate the appraised value of the property is $1 million for the land and $3 million for the building ( i.e. 25%/75% ratio). 1. What is the basis of the property? 2. Of the total basis, how much is allocated to land? 3. How much is allocated to building? 4. What is the annual depreciation expense? After 3 full years, Smith sells the building for $8,000,000. He wishes to enter in a 1031 exchange transaction. 5. What is the gain on the sale of the asset? 6. How much cash is sent to the qualified intermediary? Smith buys a new building within the required time period for $9,000,000. He obtains a $4,000,000 mortgage for this asset. 7. What is the new basis of this replacement property? 8. If Smith obtained a $5,000,000 mortgage instead, what is the boot received on the transaction and what is the tax implication