Mrs. Stile owns investment land subject to a $600,000 nonrecourse mortgage. Her basis in the land is $212,000, and the land's appraised FMV is $575,000. Mrs. Stile is considering defaulting on the mortgage and allowing the creditor to foreclose. If Mrs. Stile disposes of the land through a foreclosure, she will recognize:

Question

Quizplus · Accepted Answer

The correct answer is D. The amount of gain recognized is the difference between the amount of the mortgage and the fair market value of the property. In this case, the amount of the mortgage is $600,000 and the fair market value of the property is $575,000. Therefore, the amount of gain recognized is $388,000.

Mrs Stile Owns Investment Land Subject to a $600,000 Nonrecourse