Erin purchases 2 acres of land in 2020 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10 percent. In addition, Erin agrees to let the seller store farm equipment on the land for 2 years (rental value of $1,000 per year). In return, the seller agrees to pay the $800 in points required to obtain the $40,000 loan. Erin also pays legal and abstracting fees of $700 on the purchase.

a. In 2021, Erin pays $250 in property tax on the land. In addition, the county paves the road that runs by the land and assesses each taxpayer $1,300 for the paving. What is Erin’s adjusted basis in the land at the end of 2021?

b. In 2022, Erin sells 1 acre of the land to her brother for $18,000. What is her gain or loss on the sale of the land? What is her basis in the remaining acre of land?