Question

Tabitha sells real estate on March 2 for $260,000. The buyer, Ramona, pays the real estate taxes of $5,200 for the calendar year, which is the real estate property tax year. Assume that this is not a leap year.

a. Determine the real estate taxes apportioned to and deductible by the seller, Tabitha, and the amount of taxes deductible by Ramona.

b. Calculate Ramona’s basis in the property and the amount realized by Tabitha from the sale.

 

 

Answer 1

Apportionment of Real Estate Tax

Generally, the real estate tax is divided between the seller and the buyer on the basis of day property held by each other. If in case the entire tax is paid by the buyer in that case that much amount which is related to the seller is added to the sales value which increases the sales value and added to buyer basis i.e. purchases price of the buyer.

 

a.

In this case, the tax pertaining to real estate is divided amongst R and T on the basis of number of days for which property is owned by both of them. Since, property is sold on March 2 and it is not leap year, number of day property held by T accounts for 61 and number of day property held by Ramona accounts for 304. Therefore, computation of the amount apportioned between buyer and seller is shown below:

 

T’s shares = (5200 × 60/365)

= $855

 

R’s share = (55,200 - $855)

= $4,345

 

Hence, it is ascertained that the T is entitled to deduct real estate tax amounting to $855and the real estate tax deducted by R accounts for $4,345.

 

b.

T sells property to R on March 2 at $260000. Buyer paid $5200 real estate tax for the calendar year. The basis of R in the real estate accounts for $260,855 ($260,000 + $855) pertaining to the taxes for property paid by the R to T. the amount realized by T accounts for $260,855 ($260,000 + $855) pertaining to taxes against property paid by R.

a. Hence, it is ascertained that the T is entitled to deduct real estate tax amounting to $855and the real estate tax deducted by R accounts for $4,345.