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15 May, 23:10

Taylor is negotiating to buy some land. Under the first option, Taylor will give Ella $150,000 and assume her mortgage on the land for $100,000. Under the second option, Taylor will give Ella $250,000 and she will immediately pay off the mortgage. Taylor wants his basis for the land to be as high as possible. Given this objective, which option should Taylor select

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  1. 15 May, 23:21
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    The cost basis for the land is equal under both options.

    Explanation:

    If Taylor pays Ella $150,000 in cash and assumes the mortgage of $100,000, the cost basis of the land will be $250,000 ( = $150,000 + $100,000). If he decides to pay Ella the full amount of $250,000, that will also be the cost basis of the land.

    The only real difference is that if Taylor decides to assume the mortgage, he will need a smaller initial cash flow ($150,000).
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