How Much is Rick's Basis in the Residence after Purchasing it from Alicia?

What factors determine Rick's basis in the residence after purchasing it from Alicia? The factors that determine Rick's basis in the residence after purchasing it from Alicia include the purchase price of $490,000 and the prorated share of real estate taxes that are his responsibility, totaling $495,880.

After purchasing the residence from Alicia for $490,000, Rick's basis in the property is calculated by adding the purchase price to any additional costs he incurred in the transaction. In this case, Rick also assumed Alicia's payment of real estate taxes for the year, which amounted to $7,350.

For income tax purposes, the real estate tax deduction is apportioned between the buyer and seller based on the period of ownership within the tax year. Alicia's portion of the real estate tax is $1,470, leaving $5,880 to be apportioned to Rick. Therefore, Rick's basis in the property is $490,000 plus the prorated share of taxes he is responsible for, which totals $495,880.

It is important to consider all aspects of the transaction when determining the basis of a property for tax purposes, including prorated taxes paid by the seller that the buyer is now responsible for after the sale.

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