Ficia Inc.owned investment land subject to a $294,500 recourse mortgage.Ficia failed to make timely mortgage payments,so the creditor foreclosed.At date of foreclosure,Ficia's basis in the land was $300,000,and the land's appraised FMV was $260,000.The creditor informed Ficia that it would not pursue collection of the $34,500 unpaid balance of the mortgage.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Ficia recognizes $34,500 as ordinary income from the cancellation of debt (COD) income because the creditor forgave the unpaid balance. Additionally, Ficia recognizes a $40,000 capital loss, calculated as the difference between the basis in the land ($300,000) and the FMV at foreclosure ($260,000).

Ficia IncOwned Investment Land Subject to a $294,500 Recourse Mortgage