Property Dispositions Initial Basis LO 4 5 On October 1 2017

Property Dispositions, Initial Basis (LO. 4, 5) On October 1, 2017, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust\'s adjusted basis in the lot is $20,000. Real estate taxes attributable to the property are $1,000. The city in which the lot is located operates on a calendar year, and taxes are due on April 1 of the following year. The sales agreement provides that Mitzo will pay the property tax bill in 2018. Note: Assume for computational purposes a 365-day year. Do not round any divisions. Round other computations to the nearest whole dollar. a. Mitzo\'s initial basis in the lot is $ b. Elm Trust\'s gain on the sale is $ c. Assume that the sales agreement provides that Elm Trust will pay its portion of the real estate taxes. The sales price remains at $60,000, On April 1, 2013, Mitzo Realty Partnership pays the $1,000 property tax bill. Then Mitzo\'s initial basis in the lot is and Elm Trust\'s gain on the sale is s

Solution

A. Mitzo\'s initial basis in the lot = 60000+(1000*273/365)= 60000+748 = 60748

B. Gain realised on sale = 60000+(1000*273/365)-20000= 40748

C. Mitzo\'s initial basis in the lot= 60000

Elm Trust\'s gain on the sale = 60000-20000= 40000