Question

In 2011, 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.

Answer 1

	Michael 's gain or loss on the sale is
	Cash received from buyer	34,000
	Less: Real Estate Commissions	5,000
	Less: Land purchase cost net of non-recourse mortgage ( 100,000 - 30,000 )	70,000
	Gain/(loss) on sale of land	- 41,000
	Correct answer is option D (i.e. $ 41,000 ) .