Question

Fred purchased his primary residence for $260,000. As part of the closing procedure, he paid $2,900 in loan origination fees, $750 to a lawyer to review the purchase contract and other closing papers, $250 for a property survey, and $1,200 for title insurance. He also gave the real estate agent a $100 gift certificate in appreciation for her hard work. What is Fred's basis in the residence?

$260,000

$261,200

$262,200

$263,000

Answer 1

Fred's basis in the residence is $265,100, which includes the purchase price along with loan origination fees, legal fees, property surveys, and title insurance.

Step-by-step explanation:

Fred's basis in the residence includes the purchase price of the home plus certain additional costs associated with acquiring the property. These additional costs typically include loan origination fees, legal fees, property surveys, title insurance, but not gifts to the real estate agent. To calculate Fred's basis, we add the following: $260,000 (purchase price) + $2,900 (loan origination fees) + $750 (legal fees) + $250 (property survey) + $1,200 (title insurance). This comes out to a total of $265,100, which is his basis in the residence.

Answer 2

Fred's basis in the residence is $265,100, which includes the purchase price and certain allowable closing costs.

Step-by-step explanation:

Fred's basis in the residence includes the purchase price and certain closing costs that are directly related to the acquisition of the property. The initial purchase price was $260,000. To this price, we add the loan origination fees of $2,900, the legal fees of $750 for reviewing the purchase contract and other closing papers, the $250 for a property survey, and the title insurance cost of $1,200. However, we do not include the $100 gift certificate given to the real estate agent as it is not a closing cost related to the acquisition of the property. Thus, Fred's basis in his residence is the sum of the purchase price and the relevant closing costs, which is $260,000 + $2,900 + $750 + $250 + $1,200 = $265,100.