Sally owns real property for which the annual property taxes are $14,880. She se

Question

Sally owns real property for which the annual property taxes are $14,880. She sells the property to Kate on April 2, 2017, for $744,000. Kate pays the real property taxes for the entire year on October 1, 2017. 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 _______. Her amount realized is increased by this amount
d. How would the answers in part 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 __________.

Explanation / Answer

a. How much of the property taxes can be deducted by Sally and how much by Kate?
Sally can deduct _2405 (59/365*14880)_ and Kate can deduct _12475 (306/365*14880)_ 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 2405_ 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 746405 (744000+2405) Her amount realized is increased by this amount
d. How would the answers in part b and c differ if the taxes were paid by Sally?

Sally’s amount realized would be her selling price minus the real propertytaxes apportioned to Kate ($744,000 $12475 = $731525).Shelley’s adjusted basis would be her cost minus the real property taxes = 744000- 12475 = 731525

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