On April 17 of the current year, Tessa sells a building to Jennifer for $510,000

Question

On April 17 of the current year, Tessa sells a building to Jennifer for $510,000. Tessa's basis in the building is $360,000. The county in which the building is located has a real property tax year that ends on June 30. The taxes are payable by September 1 of that year. On September 1, Jennifer pays the annual property taxes of $5,500 Both Tessa and Jennifer are calendar-year cash method taxpayers. The closing agreement does not separately account for the properly taxes. Disregard any leap year. Read the requirements Requirement a. What amount of real property taxes may Jennifer deduct in the current year? (Assume that the purchaser owns the house on the date of the sale. Round your answer to the nearest dollar.) Jenter may deduct $ inthe current year. n the current year Requirement b. What amount of real property taxes may Tessa deduct in the current year? (Assume that the purchaser owns the house on the date of the sale. Round your answer to the nearest dolar.) Tessa may deduct $in the current year. Requirement c. If no apportionment on the real property taxes is made in the sales agreement, what is Tessa's total selling price of the building? Jennifers basis for the building? The total selling price of the buildng and the cost basis to the buyer, Jennifer, is

Explanation / Answer

1. As per IRS, real property tax paid on sale or purchase of property is deductible by the buyer for the part of the year for which he purchased the property. Even if the whole amount is paid by the buyer, the same can is deductible for the part of year.

Number of months in calender year Jennifer owns the house = 9 months (1st April 2017 - 31st December 2017)

Deductible Property tax for Jennifer = 5,500 / 12 x 9 = $4,125  

2. Tessa Share in property tax = 5,500 - 4,125 = $1,375

Amount deductible in Tessa's tax return = $1,375

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