The following example shows how to compute the debt/basis
percentage by first determining the average acquisition indebtedness
and average adjusted basis.
Example.
On July 7, an exempt organization buys an office building for
$510,000 using $300,000 of borrowed funds. The organization files its
return on a calendar year basis. During the year the only adjustment
to basis is $20,000 for depreciation. Starting July 28, the
organization pays $20,000 each month on the mortgage principal plus
interest. The debt/basis percentage for the year is calculated as
follows:
| Month |
Debt on first day of each
month property is held |
| July |
$ 300,000 |
| August |
280,000 |
| September |
260,000 |
| October |
240,000 |
| November |
220,000 |
| December |
200,000 |
| Total |
$1,500,000 |
| Average acquisition
indebtedness: $1,500,000 × 6 months |
$ 250,000 |
| |
Basis |
| As of July 7 |
$ 510,000 |
| As of December 31 |
490,000 |
| Total |
$1,000,000 |
| Average adjusted basis:
$1,000,000 × 2 |
$ 500,000 |
Table
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