Question

Wanting to finalize a sale before year-end, on December 29, WR Outfitters sold to Bob a warehouse and the land for $125,000. The appraised fair market value of the warehouse was $75,000, and the appraised value of the land was $100,000. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)
a. What is Bob's basis in the warehouse and in the land?
b. What would be Bob's basis in the warehouse and in the land if the appraised value of the warehouse is $50,000, and the appraised value of the land is $125,000?
c. Which appraisal would Bob likely prefer?

Answer 1

Answer:

A. Warehouse basis $53,571

Land Basis $71,429

B. Warehouse basis $35,714

Land Basis $89,286

C. Appraisal basis in part (a)

Explanation:

a. Calculation to determine What would be Bob’s basis in the warehouse and in the land

Warehouse basis=$125,000*$75,000/(100,000+75,000)

Warehouse basis=$53,571

Land Basis=$125,000*$100,000/($100,000+$75,000)

Land Basis=$71,429

Therefore What would be Bob’s basis in the warehouse is $53,571 and in the land is $71,429

b. Calculation to determine What would be Bob’s basis in the warehouse and in the land if the appraised value of the warehouse was $50,000, and the appraised value of the land was $125,000

Warehouse basis=$125,000*$50,000/($50,000+$125,000)Warehouse basis=$35,714

Land basis=$125,000*$125,000/($125,000+$50,000)Land basis=$89,286

Therefore What would be Bob’s basis in the warehouse is $89,286 and in the land is $35,714 if the appraised value of the warehouse was $50,000, and the appraised value of the land was $125,000

c. Based on the above calculation for part (a) and part (b) the APPRAISAL that Bob would likely prefer will be the APPRAISAL amount in part (a) reason been that the appraisal enables him to allocate additional basis to the warehouse which was lesser in part (b).