Exercise 14-16 (Algorithmic) (LO. 1, 2)

Sally owns real property for which the annual property taxes are $18,280. She sells the property to Kate on April 2, 2020, for $914,000. Kate pays the real property taxes for the entire year on October 1, 2020.

Assume a 365-day year. Round any division to four decimal places. Round your final answers to the nearest dollar.

a. How much of the property taxes can be deducted by Sally and how much by Kate?

Sally can deduct $fill in the blank and Kate can deduct $fill in the blank of the property taxes.

b. What effect does the property tax apportionment have on Kate's adjusted basis in the property?

Kate's adjusted basis for the property is increased by the $fill in the blank she paid that is apportioned to Sally.

c. What effect does the apportionment have on Sally's amount realized from the sale?

Sally paid none of the real property taxes and is permitted to deduct the apportioned share of $fill in the blank. Her amount realized is increased by this amount.

d. How would the answers in parts (b) and (c) differ if Sally paid the taxes?

If Sally paid the taxes, Sally's amount realized would be $fill in the blank . Kate's adjusted basis would be $fill in the blank .