Question

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?

Answer 1

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

Step-by-step 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