Ralph Birch purchased land and a building which will be used in connection with Birch's business. The costs associated with this purchase are as follows:
Cash down payment - $ 40,000
Mortgage on property - 350,000
Survey costs - 2,000
Title and transfer taxes - 2,500
Charges for hookup of gas, water, and sewer lines - 3,000
Back property taxes owed by the seller that were paid by Birch - 5,000
What is Birch's tax basis for the land and building?
a) $ 44,500
b) $394,500
c) $397,500
d) $402,500
Answer: d) $402,500