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7 September, 04:10

Lewis Brown bought four lots of land for $100,000. On the date of purchase, the lots had the following fair market values:Lot #1$25,000Lot #2$31,250Lot #3$20,625Lot #4$48,125What is the basis to Lewis of Lot #3?

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  1. 7 September, 07:53
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    Basis of Lewis of Lot #3 = $16,500

    Explanation:

    Total of all the lots = $25,000 + $31,250 + $20,625 + $48,125 = $125,000

    Since the land is purchased for $100,000

    The basis for each dollar = $100,000/$125,000 = $0.8 for each dollar

    Thus for Lot #3 basis = $0.8 X $20,625 = $16,500

    Note: The basis is calculated so that directly the lot value is not considered as the total cost is only 80% of total lot value.

    Basis of Lewis of Lot #3 = $16,500
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