Question

1. Jacob purchased a rental property in 2018. The original price of the house was $158,000. Jacob paid real estate taxes of $1,500 on behalf of the seller, which was not reimbursed by the seller. Jacob also paid $3,000 title insurance fee, $5,000 loan assumption fee, and $800 homeowner insurance. What amount is the original basis of the rental property?

a)$167,500 b)$158,000 c)$163,300 d)$162,500

2. Teri’s uncle gave her a house on 12/25/01. The fair market value of the house at the time of the gift was $79,000. Assume he owed no gift tax. Her uncle purchased the house on 3/20/74 for $58,759. The home has never been used for business. Prior to moving into the house, Teri paid for the following: New roof $9,873 Installed storm windows $1,962 Replaced a broken window Replaced gravel in the driveway $ 127 $ 499 Assume if she sells the house in the future, Teri would realize a gain. What is Teri’s adjusted basis in her home? a) $91,461 b) $90,835 c) $70,721 d) $70,594

Answer 1

1. THE ORIGINAL BASIS OF THE RENTAL PROPERTY IS THE ORIGINAL PRICE OF THE HOUSE PLUS REAL ESTATE TAX PAID BY THE BUYER PLUS INSURANCE FEE PAID PLUS LOAN ASSUMPTION FEE PAID.

ie $158000+$1500+$3000+$5000 = $167500 OPTION (a)

2. ADJUSTED BASIS OF A HOUSE IS TO BE CALCULATED AS FOLLOWS

FAIR MARKET VALUE OR PURCHASE PRICE WHICHEVER IS HIGHER PLUS ANY IMPROVEMENT COSTS INCURRED.

SINCE FAIR MARKET VALUE IS HIGHER THAN PURCHASE PRICE THE AMOUNT WILL BE $79000+$9873+$1962+$127+$499 = $91461 OPTION (a)