Your client, the noted law firm of Dewey, Cheatem & Howe, is a partnership that owns an office building in which it has conducted its legal practice for many years. Its existing building has a fair market value of $5,500,000. The property is collateralized by a mortgage of $1,000,000. The adjusted basis of the building is composed of the following amounts:

Land 400,000

Building 450,000

Accumulated depreciation (100,000)

Adjusted basis 750,000

The law firm has outgrown the space in this building and has acquired a larger office building by exchanging its existing building for the larger building. The building that was acquired has a fair market value of $6,500,000 and is subject to a mortgage of $1,000,000. Dewey, Cheatem & Howe engaged an appraisal firm to perform a cost segregation study for the acquired property.

That study indicated that the fair market value of land and building is as follows:

Land 2,500,000

Building 4,000,000

Total 6,500,000

Answer the following questions

a) How much is the realized gain?

b) How much is the total boot, if any?

c) Is there mortgage boot? If so, how much?

d) How much new money did Dewey, Cheatem & Howe have to contribute to balance the equities?

e) What is the total basis of the like-kind property received?

f) Provide the following basis items immediately after the exchange for the like-kind property received. Use the default method provided under Reg. 1.168(i)-6.

	Cost Basis	Accumulated Depreciation	Adjusted Basis
Land--substituted basis
Land--new basis
Building-substituted basis
Building-new basis
Total