On October 1, 2020, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust’s adjusted basis in the lot is $20,000. Real estate taxes attributable to the property are $1,000. The city in which the lot is located operates on a calendar year, and taxes are due on April 1 of the following year. The sales agreement provides that Mitzo will pay the property tax bill in 2021.

a. What is Mitzo’s initial basis in the lot?

b. What is Elm Trust’s gain on the sale?

c. Assume that the sales agreement provides that Elm Trust will pay its portion of the real estate taxes. The sales price remains at $60,000. On April 1, 2021, Mitzo Realty Partnership pays the $1,000 property tax bill. What is Mitzo’s initial basis in the lot? What is Elm Trust’s gain on the sale?