On September 1,of the current year,James,a cash-basis taxpayer,sells his cottage to Bill,also a cash-basis taxpayer,for $100,000.James' 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 in November of the current year.The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller.Assume Bill pays all of the real estate taxes in the current year.The effects of this sales structure will be

Question

Quizplus · Accepted Answer

C) Both buyer and seller deduct their apportioned share of the property taxes for the year (James is allocated taxes for January 1 -August 31, and Bill is allocated taxes for September 1 - December 31). Because Bill paid James' share of the taxes, and this was not reflected in the sales agreement, James has received a benefit of $2,430 which increases his gain.

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