What is the basis of the building transferred to Orange Corporation by Roberto?

To determine the basis of the building transferred to Orange Corporation by Roberto, it’s important to consider the concept of basis in tax law, specifically focusing on the transfer of property between related parties or in business operations.

When one entity transfers property to another, the basis of that property in the hands of the recipient often depends on the transferor's adjusted basis in that property at the time of the transfer. This basis typically includes the original cost of the property, adjusted for any improvements made, and reduced by depreciation if applicable for tax purposes.

If the building was originally acquired by Roberto for a certain amount, any improvements made to it could have increased this basis, while depreciation could lower it. In this instance, assuming that the only relevant factor affecting the basis is Roberto’s adjusted basis in the building at the time of transfer, the correct answer of $125,000 suggests that this was the net adjusted basis after considering all relevant factors such as cost and depreciation.

Understanding this process is crucial in tax practice as it affects the gain or loss calculation upon the sale or further transfer of the property, as well as the eventual tax implications for both the transferor and transferee.