Question

In 2001, Ellen purchased a house for $60,000 to use as her personal residence. She paid $12,000 and borrowed $48,000 from the local savings and loan company. In 2005 she paid $10,000 to add a room to the house. In 2007 she paid $625 to have the house painted and $800 for built-in bookshelves. As of January 1 of the current year, she has reduced the $48,000 mortgage to $26,300. What is her basis for the home?

Answer 1

Ellen's basis for the home is $119,425, which is calculated by adding up the purchase price, the amount borrowed, and the costs of improvements made to the house.

Step-by-step explanation:

Ellen's basis for the home is the total amount she has paid to acquire and improve the property. To calculate her basis, we add up the purchase price, the amount borrowed, and the costs of improvements made to the house.

Here's the breakdown:

1. Purchase price: $60,000
2. Amount borrowed: $48,000
3. Cost of adding a room: $10,000
4. Cost of painting the house: $625
5. Cost of built-in bookshelves: $800

To find Ellen's basis, we add up these amounts: $60,000 + $48,000 + $10,000 + $625 + $800 = $119,425.