Question - City of Los Angeles donates land to ABC Corporation as an inducement for ABC to locate there. The land is worth $2 million. The city also donates $500,000 of cash to ABC.
A. What basis will ABC Corporation have in land?
B. If ABC purchases property 6 months later with the $500,000 cash, what basis will it have in the property?
The correct answers to both A and B are zero. But can someone offer explanation why is that? (ABC corporation has a zero basis in land, and it also has a zero basis in property).