Question

Carlton purchases land for $550,000. He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase. He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $800,000. What is Carlton's basis for the land and the improvements?

a. $1,350,000
b. $1,378,000
c. $1,385,000
d. $1,413,000
e. None of the above

Answer 1

Carlton's basis for the land and improvements is $1,413,000.

Step-by-step explanation:

Carlton's basis for the land and improvements can be calculated by adding up the purchase price of the land, legal fees, broker's commission, and additional legal fees for rezoning. Then, the cost of subdividing the land and installing streets and sewers should be added.

The calculation is as follows:

1. Purchase price of the land: $550,000
2. Legal fees: $10,000
3. Broker's commission: $28,000
4. Additional legal fees for rezoning: $25,000
5. Cost of subdividing the land and installing streets and sewers: $800,000

Adding all these costs, the basis for the land and improvements is $1,413,000. Therefore, the correct answer is d. $1,413,000.