Taylor is negotiating to buy some land and has two options. Under the first opti

Question

Taylor is negotiating to buy some land and has two options. Under the first option, Taylor will give Ella $150,000 and assume her mortgage on the land for $100,000. Under the second option, Taylor will give Ella $250,000, and she will immediately pay off the mortgage. Taylor wants his basis for the land to be as high as possible. Given this objective, which option should Taylor select?

Taylor's basis in the land under Option 1 is $__________ .

Taylor's basis in the land under Option 2 is $__________ .

If a taxpayer sells property for cash, the amount realized consists of the net proceeds from the sale. For each of the following, indicate the effect on the amount realized.

Stock that has a basis to the purchaser of $6,000 and a fair market value of $10,000 is received by the seller as part of the consideration.
The receipt of the stock by the seller increases the amount realized by the seller by $_____________.

Explanation / Answer

Taylor's adjusted basis in the land under option 1;

Amount given to Ella = $150,000.

Add: Mortagage         = $100,000.

Total adjusted basis in the land under option 1 is $250,000.

Taylor's adjusted basis in the land under option 2:

Amount given to Ella is the adusted basis of $250000.

If the tax payer sells the land;

Option 1:

Assume amount realised on sale is $300,000.

The gain under option 1 is $300,000 - $150,000 = $150,000.

The gain under option 2 is $300,000 - $250,000 = $50,000.

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