6. Ann is constructing a building that she will rent residential tenants. Construction costs during the construction period totaled $4,000,000 and were directly financed by a loan of $3,000,000 from Main Street Bank. The balance of construction costs came from cash previously borrowed from Eastern Bank totaling $1,200,000. The loan was borrowed two years before the construction began. Ann has not made any principal payments on either loan and has no other available funds or outstanding debt. Assume the interest charged for both loans was 10% and the construction period lasted for one year. How much of the interest, if any, must be capitalized during the construction period? a. $120,000 b. $300,000 c. $400,000 d. $420,000 e. $0 if Ann taxpayer files a proper election with her return 7. Eric is on the cash method of accounting. Eric is the owner of real property and paid a real estate tax bill of $24,000 covering the period from January 1, 2024, to December 31, 2024. Eric sold the property on March 1, 2024. How should the real estate taxes be treated for tax purposes? (If necessary, use a 360-day year and 30-day month to calculate your answer.) a. $20,000 is added to the purchaser’s basis and $4,000 added to the seller’s amount realized on the sale. b. $24,000 is apportioned to the seller who paid the bill. c. $12,000 is apportioned to the seller and $12,000 is apportioned to the buyer. d. $4,000 is apportioned to the seller and $20,000 to the buyer. e. None of the above. 8. Dorothy purchases a commercial building and land for $2,000,000 and pays $50,000 in additional costs directly related to the acquisition. Assume the value of the land represents 30% of the total value of the real property. The real property also includes carpeting valued at $50,000. How should the costs be properly allocated for tax purposes in determining depreciation? a. $2,000,000 to the building b. $2,050,000 to the building c. $1,435,000 to the building d. $1,400,000 to the building AND $50,000 TO THE CARPETING e. $2,000,000 to the building and $50,000 to the carpeting 9. Tony is considering whether to acquire a certain piece of real estate for his business. He pays $15,000 to evaluate local zoning laws and conduct market surveys. He also incurred $7,000 in costs to prepare an offer for the property. The offer was rejected by the owner and the property was not acquired. How should these costs be treated for tax purposes? a. $22,000 may be deducted as an expense b. $22,000 must be capitalized and may be deducted only upon complete liquidation of the business c. $15,000 may be expensed and $7,000 claimed as a loss d. $7,000 may be expensed and $15,000 claimed as a loss e. $22,000 may be claimed as a loss when it is determined that the property will not be acquired 10. Rebecca acquired a building on May 31, 2024. In June, Rebecca incurs $200,000 for repairs: $40,000 for plumbing leaks, $100,000 for repainting, and $60,000 for repairing crumbling cement. The property is placed in service on July 1, 2024. How should the taxpayer treat these costs? a. $200,000 may be deducted as repair expense. b. Only $40,000 for the plumbing may be expensed; $160,000 will be capitalized as part of the cost of the building. c. Only $100,000 for the painting may be expensed; $100,000 will need to be capitalized as part of the cost of the land. d. The entire cost of $200,000 will need to be capitalized as part of the cost of the land. e. The entire cost of $200,000 will need to be capitalized as part of the cost of the building.