Question

Sally owns real property for which the annual property taxes are $16,680. She sells the property to Kate on April 2, 2020, for $834,000. Kate pays the real property taxes for the entire year on October 1, 2020. Assume a 365-day year. Round any division to four decimal places. Round your final answers to the nearest dollar. a. How much of the property taxes can be deducted by Sally and how much by Kate? Sally can deduct $____ and Kate can deduct $___

of the property taxes.

b. What effect does the property tax apportionment have on Kate's adjusted basis in the property?

Kate's adjusted basis for the property is increased  by the $___she paid that is apportioned to Sally.

c. What effect does the apportionment have on Sally's amount realized from the sale?

Sally paid none of the real property taxes and is  permitted to deduct the apportioned share of $____

d. How would the answers in parts (b) and (c) differ if Sally paid the taxes?

If Sally paid the taxes, Sally's amount realized would be $___ Kate's adjusted basis would be $_____

Answer 1

a. $16,680 * 92/365 = $4,204 Sally can deduct this amount

$16,680 * 273/365 = $12,476 Kate can deduct this amount

b. Cost $834,000 + $4,204 Sally's amount she did not pay.

Adjusted basis = $838,204

c. Selling price $834,000 + $4,204 Amount realized $838,204 because Sally did not pay the property tax and deducted it.

d. Sally's amount realized would be her selling price minus the real property taxes apportioned to Kate ($834,000 - $12,476 = $821,524

Kate's adjusted basis would be her cost minus the real property taxes apportioned to her ($834,000 - $12,476) = $821,524