In 2000,Michael purchased land for $100,000.Over the years,economic conditions deteriorated,and the value of the land declined to $60,000.Michael sells the property in this year,when it is subject to a $30,000 nonrecourse mortgage.The buyer pays Michael $34,000 cash and takes the property subject to the mortgage.Michael incurs $5,000 in real estate commissions.Michael's gain or loss on the sale is
A)$4,000 gain.
B)$1,000 loss.
C)$36,000 loss.
D)$41,000 loss.

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the sale of the property, we need to first determine the adjusted basis of the property. The adjusted basis is the original purchase price ($100,000) minus any depreciation claimed, which is not given in the problem. Therefore, we assume that no depreciation was claimed and the adjusted basis remains at $100,000.

Next, we need to calculate the amount realized from the sale. The amount realized is the cash received ($34,000) plus the mortgage relief ($30,000). Thus, the amount realized is $64,000.

To determine the gain or loss, we subtract the adjusted basis of $100,000 from the amount realized of $64,000. This results in a loss of $36,000.

Finally, we subtract the real estate commissions of $5,000 from the loss of $36,000 to arrive at a total loss of $41,000. Therefore, the correct answer is D, $41,000 loss.

In 2000,Michael Purchased Land for $100,000