Empire Corporation purchased an office building for $500,000 cash on April 1. Prior to renting it out to tenants on July 1, Empire spent $200,000 on materials and labor to renovate the property. It funded $50,000 of the renovation cost with its own funds and borrowed the remaining $150,000. As of July 1, $2,000 of interest had been paid to the bank, but none of the principal had been repaid. The basis of the building on July 1 is

Question

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The basis of the building is the original cost plus the cost of improvements. The original cost is $500,000. The cost of improvements is $200,000. The total basis is $700,000. The interest paid on the loan is not added to the basis.

Empire Corporation Purchased an Office Building for $500,000 Cash on April