Question

In: Accounting

Tom sells real estate on March 2 for $260,000. The buyer, Raul, 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.

Tom sells real estate on March 2 for $260,000. The buyer, Raul, 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, Tom, and the amount of taxes deductible by Raul.

B. Calculate Raul's basis in the property and the amount realized by Tom from the sale.

Solutions

Expert Solution

Number of real estate held by Tom = 1st January to March 2

= 31 days + 28 days +1 days = 60 days

Real estate Tax = $ 5200

Measure the land tax deductable by TOM = 60/365 = 0.1644

Assume that year considered as 365 days

Real Estate Tax deducted by Tom = 5200*0.1644 = $ 854.88

Number of days real estate held by Raul = March 2 to December 31

= 365 days - 60 days

= 305 days

Measure of land charges deducted by Raul = 305/365 =0.8356

Real Estate Tax deducted by Raul = 5200*0.8356 = $ 4345.12

Amount realised by Tom = $ 260000-$854.88 = $ 259145.12

Raul basis in Property = $ 260000+$ 4345.12 = $ 264345.12

a)

Real Estate Tax deducted by Tom = $ 854.88

Real Estate Tax deducted by Raul = $ 4345.12

b)

Amount realised by Tom    = $ 259145.12

Raul basis in Property = $ 264345.12

ekkarill92 answered 2 years ago
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