Question

Ally owns land with an adjusted basis of $610,000. Real estate taxes are $8,000 per calendar year and are payable on December 31. On April 2, 2017, Ally sells her land subject to the mortgage for $640,000 in cash, a note for $590,000, and property with a fair market value of $130,000. What is the amount realized?
a.
$1,360,000.
b.
$1,361972.
c.
$1,720,000.
d.
$1,722,219.
e.
None of the above.

Answer 1

b.$1,361972.

The amount realized by Alice is equal to:

+ $640,000 (Cash)
+ $590,000 (Note)
+ $130,000 [Property (FMV)]

+$1,972 (Pro-rated Property Tax)

Total =$1,361,972

You get the Prorated Property Tax amount by counting the days she owned the property = 31 + 28 + 31= 90 days, and then divide it by the number of days in a year = 365 -> (90/365) X $8,000 of Property Tax per year, which equals $1,972 Prorated Property Tax she owes.

Thanks

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