9.
In eminent domain, what value is the owner entitled to as compensation for the taking of real property?
a.Actual cost
b.Appraised value
c.Market value
d.Fair market value
Eminent domain is the government’s constitutional or statutory power to take private property for the public use. The property owner is paid the fair market value (FMV) of the property. FMV is basically the price that a buyer with reasonable knowledge of the asset would pay under conditions where the buyer is acting in his or her own self-interest without undue influence and with sufficient time to complete the transaction. Market value is simply the price shown in a listing and does not take into account other market factors. The appraised value is only the opinion of one appraiser. To determine FMV, typically the owner and the government will negotiate and attempt to arrive at an agreement of sale. However, in the event a value is not agreed to, the parties will typically call expert witnesses at trial to testify to the FMV based on a number of factors, such as the size of the property, the accessiblity of the property, zoning, level of development and current or potential use. Different valuation approaches can be used to determine FMV, for example, market approach, income approach and cost approach.
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16.
To calculate realized gain, you must:
a. Add the selling expenses to the adjusted basis.
b. Subtract the capital improvements from the sale price.
c. Subtract the adjusted basis from the sale price, less selling expenses.
d. Add adjusted basis, sale price and selling expenses.
To calculate a realized gain (or loss,) simply take the difference of the total sale price (minus selling expenses) and subtract the adjusted basis. If the difference is positive, it is a realized gain. If the difference is negative, it is a realized loss. The adjusted basis is the original cost plus any capital gains. If home owners sold their primary residence for $325,000 and selling expenses were $22,000 (commission, fees, lawyer, etc.) the amount realized ($303,000) represents the sale price minus selling expenses. If their original investment in the home was $150,000 and they renovated the kitchen for $14,000 (capital improvement), the adjusted basis is $164,000. So, $303,000 - $164,000 = $139,00 potential realized gain.
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