Rufus owns 12 acres of land he purchased as an investment for $5,390. He spent an additional $34,570 subdividing the land into residential parcels and having utility lines run to the property. After the subdividing and utility lines had been completed, he gifted two acres of the land to his sister as a wedding present.
The cost of subdividing the land is added to the initial cost of the 12acres resulting in a basis of $42,000. The basis of the 2 acres gifted to his sister, $7,000 [($42,000 ÷ 12 = $3,500) x 2] reduces the adjustedbasis in the 10 remaining acres to $35,000.

Original cost $5,000
Additional costs for subdividing 37,000
subdividing37,000Basis before gift $42,000
Gift of two acres ($42,000 ÷ 12 = $3,500 x 2) (7,000)
Adjusted basis of ten acres $35,000

Rufus owns 12 acres of land he purchased as an investment for $5,000. He spent an additional $37,000 subdividing the land into residential parcels and having utility

lines run to the property. After the subdividing and utility lines had been completed, he gifted two acres of the land to his sister as a wedding present.

Solution

In this question, we are to determine the adjusted basis of land

Please check attachment for table

Kindly note that the basics of 1 acre of land before gifting is $3,500 ($42,000/12). This means the basis of gifted property of two acres is $7000($3,500 * 2)

abiolataiwo2015 abiolataiwo2015 · Answer 2 · 2020-04-24T09:40:29+02:00

Answer:

$33,300

Explanation:

The cost of subdividing the land is added to the initial cost of the 12 acres resulting in a basis of $39,960.

The basis of the 2 acres gifted to his sister is therefore:

$6,660 [($39,960÷ 12 = $3,330) x 2]

Thus : reduces the adjusted basis in the 10 remaining acres to $33,300.

Original cost $5,390

Additional costs for subdividing $34,570

Basis before gift $39,960

($34,570+$5,390)

Gift of two acre ($39,960 ÷ 12 = $3,330 x2) (6,660)

Adjusted basis of ten acres $33,300