Question

Exercise 10-16 (Algorithmic) (LO. 3, 4) Tabitha sells real estate on March 2 of the current year for $280,000. The buyer, Ramona, pays the real estate taxes of $14,000 for the calendar year, which is the real estate property tax year. Round any division to four decimal places and use in subsequent calculations. Round your final answers to the nearest dollar. Assume a 365-day year. a. Determine the real estate taxes apportioned to and deductible by the seller, Tabitha, and the amount of taxes deductible by Ramona. Tabitha: $ 2,301 x Ramona: $ b. Calculate Ramona's basis in the property and the amount realized by Tabitha from the sale. Tabitha: $ Ramona: $

Answer 1

Tabitha sells real estate property to Ramona on March 2.

So, real estate tax until March 1 will be paid by tabitha and will be deductible from tabitha.

No. Of days from January 1 to March 1 = 60 days.

So, amount deductible from tabitha= (60/365) * 14,000

= 0.1644 * 14000

= $2,302 ( Rounded off to nearest multiple)

Amount deductible from Ramona (305/365)*14,000

=0.8356 * 14,000

= $ 11,698

b. Ramona basis in the property is $ 2,80,000 + 2,302 = 2,82,302

Amount realized by tabitha from sale is 2,80,000 + 2,302 = $2,82,302

As the real estate tax for the calender year is paid by Ramona