Using the 2015 tax rates and threshold. In 2015, Michael purchased land for $100

Question

Using the 2015 tax rates and threshold. In 2015, 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

Explanation / Answer

Option D is correct

Loss on sale of land = value of land - mortgage amount - cash received on sale + commision paid

= 100000-30000-34000+5000

= $ 41000

Note:- Decline in value of land has no effect on value of land

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