Basis Calculation for Warehouse and Land Appraised Value

Understanding Basis Calculation for Warehouse and Land

Basis in the context of real estate refers to the initial cost of an asset, including expenses such as improvements, that is used to determine the capital gain or loss when the asset is sold.

When determining Bob's basis in the warehouse and in the land based on the given appraised values, we can see that the appraised value of the warehouse is $76,750, and the appraised value of the land is $169,000.

Therefore, following the principle that Bob's basis in each property would be equal to its appraised value, we conclude that Bob's basis in the warehouse would be $76,750, and his basis in the land would be $169,000. This aligns with option a) Warehouse: $76,750; Land: $169,000 as the correct answer.

Understanding the basis calculation is essential for tax purposes as it influences the capital gains or losses that will be realized upon the sale of the property. By knowing the basis of each property, Bob can accurately calculate his potential gains or losses when the time comes to sell.