On September 1,of the current year,Samuel,a cash-basis taxpayer,sells his cottage to Edward,also a cash-basis taxpayer for $100,000.Samuel's basis in the cottage is $65,000.The real property tax year is the calendar year.Real estate taxes on the property for the year are $3,650 and are payable on April 1 of the following year.The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller.Assume Samuel pays all of the real estate taxes prior to the sale.The effects of this sales structure will be:

Question

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Samuel, as a cash-basis taxpayer, will recognize the gain on the sale of the cottage when he receives payment for the property. Therefore, he will recognize the gain in the current year. His gain on the sale is calculated as follows:
Sales Price: $100,000
Less: Basis in Property: $65,000
Real Estate Taxes Paid: $3,650
Total Gain: $31,350
Since the sales agreement does not provide for apportionment of real estate taxes, Samuel will not be able to deduct the real estate taxes paid on the property in the year of the sale. The real estate taxes will be included in the basis of the property for Edward, the buyer. Therefore, Edward's basis in the property will be $100,000 + $3,650 = $103,650.

On September 1,of the Current Year,Samuel,a Cash-Basis Taxpayer,sells His Cottage