Ted purchases some forest land in 2014 with the intention of building a log cabin to use as a vacation home.To obtain the land,Ted pays $10,000 cash,assumes the seller's $19,000 mortgage on the land and pays $3,000 in commissions and legal fees related to the purchase.In 2015,Ted pays a contractor $4,000 to bulldoze and level the site of the log cabin.In 2016,Ted has a well dug and water and sewer lines laid in the ground at a cost of $6,000.Ted paid $2,000 of property taxes in 2014 and $5,000 of property taxes in 2015 and 2016 on the land.What is Ted's basis in the land at the end of 2016?
A)$54,000
B)$42,000
C)$38,000
D)$36,000
E)$32,000

Question

Quizplus · Accepted Answer

Ted's basis in the land is the sum of all the costs and expenses related to its purchase and improvements. These costs and expenses include:
- Cash paid: $10,000
- Assumed mortgage: $19,000
- Commissions and legal fees: $3,000
- Bulldozing and leveling: $4,000
- Well, water, and sewer lines: $6,000
- Property taxes: $2,000 + $5,000 + $5,000 = $12,000

Therefore, Ted's basis in the land at the end of 2016 is $10,000 + $19,000 + $3,000 + $4,000 + $6,000 + $12,000 = $54,000. The correct answer is B, which is the closest value to the calculated basis.

Ted Purchases Some Forest Land in 2014 with the Intention