What is the correct action when you subdivide a lot?

When subdividing a lot, the appropriate action is to determine the fair market value of each lot at the time of purchase. This approach aligns with tax regulations regarding property basis and allows for a more accurate reflection of each subdivided parcel's value.

By assessing the fair market value, you can allocate the basis more effectively based on the current market conditions, which may differ from the original purchase price or the future value estimates. This is important in calculating any gain or loss when you decide to sell the lots later on. Accurate valuation ensures compliance with tax laws and assists in proper reporting when selling the lots.

Moreover, this method helps avoid potential complications that could arise from misallocating the original basis or estimating future values, which may not reflect the actual market circumstances at the time of sale.