Question

Sally owns real property for which the annual property taxes are $19,730. She sells the property to Kate on April 2, 2017, for $986,500. Kate pays the real property taxes for the entire year on October 1, 2017. Please show work.

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   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   permitted to deduct the apportioned share of $_________. Her amount realized is   by this amount.

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

If the taxes were paid by Sally, Sally's amount realized would be $___________. Kate's adjusted basis would be $__________.

Answer 1

a. Sally : 58 / 365 * $19730 = $3135 Sally can deduct this amount .

    Kate : 307 / 365 * $19730 = $16595 Kate can deduct this amount.

b. Cost $986500 + $3135 Sally's amount she didnt pay = $989635 Adjusted basis

c. Selling Price $986500 + $3135 property taxes apportioned to Sally = amount realized $989635

d. Sally's amount realized would be her selling price minus the real property taxes apportioned to Kate ( $986500 + $16595 = $1003095) . Kate's adjusted basis would be her cost minus the real property taxes apportioned to her ($986500 + $16595 = $100.095).