Question

Sally owns real property for which the annual property taxes are $14,080. She sells the property to Kate on March 9, 2018, for $704,000. Kate pays the real property taxes for the entire year on October 1, 2018.

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?

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

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

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

HINT: THESE ANSWERS ARE ALL WONRG.

a	Amount of property taxes that can be deducted by Sally and Kate
	Sally
	Annual Property Taxes	$14,080
	Days in a year	365
	Property tax per day	$38.58
	Tax for 67 days upto March 9, 2018	$2,585
	Kate
	Tax for 298 days from March 9, 2018	$11,495
b	Property tax apportionment will increase the Kate's adjusted basis
	in the property
	Cost of the property	$704,000
	Add: Proprotionate share of Sally's property tax paid by Kate	$2,585
	Adjusted basis	$706,585
c	Property tax apportionment will increase the amount realized
	from the sale
	Sale price of the property	$704,000
	Add: Proportionate share of Sally's property tax paid by Kate	$2,585
	Amount realized from Sale	$706,585
d	If Sally paid the taxes the adjusted basis of kate and amount
	realized from sale by Sally both will decrease by $11495, the
	portion of property tax after the sale

Answer 1