Calculating depreciation schedule after exchanging from ground lease into fee simple

[Ben C.]

Hi,

If someone trades from a ground lease into a fee simple property how is the new basis calculated?

Example:

Ground Lease Purchase Price: $1,000,000

Sell Price: $1,300,000

Transaction and Exchange Fees: $75,000

Realized Gain: $225,000 ($1,300,000-(1,000,000+75,000))

Assume a fee simple property is purchased for $2,000,000

Would the new basis be $1,775,000?

Or will the new basis be calculated differently?

Thanks