On September 1,of the current year,Samuel,a cash-basis taxpayer,sells his farm to Edward,also a cash-basis taxpayer for $100,000.Samuel's basis in the farm 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

Quizplus · Accepted Answer

Since Samuel is a cash-basis taxpayer and pays the entire $3,650 real estate tax prior to the sale, he can deduct the full amount in the year of the sale. Therefore, Samuel's taxable gain is $31,350 ($100,000 - $65,000 - $3,650). Edward's basis in the property is $100,000 and he can deduct the real estate taxes paid by Samuel as an itemized deduction on his tax return for the year of the purchase. There is no requirement for an apportionment of real estate taxes in the sales agreement, so the entire amount of $3,650 will be deducted by Samuel.

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