(Answered) Question - city of los angeles donates land to abc

Accounting

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).

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