Exercise 10-16 (Algorithmic) (LO. 3) Tabitha sells real estate on March 2 of the
ID: 2508452 • Letter: E
Question
Exercise 10-16 (Algorithmic) (LO. 3) Tabitha sells real estate on March 2 of the current year for $323,200. The buyer, Ramona, pays the real estate taxes of $16,160 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. X of the real estate taxes is apportioned to and is deductible by the seller, Tabitha, and $ deductible by Ramona. Ramona's basis is in the property is $ realized by Tabitha from the sale is X of the taxes is X and the amountExplanation / Answer
Number of days real estate held by Tabitha = from 1 jan to 1 March = 31 days+28 days+1 day = 60 days
Real Estate Taxes = $16,160
Measure of Land charges deductible by Tabitha = 60/365 = 0.1644
Real Estate Taxes deductible by Tabitha = $16,160*0.1644 = $2,657
Number of days real estate held by Ramona = from 2 March to 31 Dec = 365 days - 60 days = 305 days
Measure of Land charges deductible by Ramona = 305/365 = 0.8356
Real Estate Taxes deductible by Ramona = $16,160*0.8356 = $13,503
Ramona's basis in property = Sale Value of Property+Real Estate Taxes deductible by Ramona
= $323,200+$13,503 = $336,703
Amount Realized by Tabitha from the Sale = Sale Value - Real Estate Taxes deductible by Tabitha
= $323,200 - $2,657 = $320,543
Therefore, $2,657 of real estate taxes is apportioned to and is deductible by the seller, Tabitha, and $13,503 of the taxes is deductible by Ramona. Ramona's basis in the property is $336,703 and the amount realized by Tabitha from the sale is $320,543 .
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