Patel bought a rental property in year 1 for $150,000. In year 1, Patel’s adjusted gross income (AGI) was $100,000 and Patel sustained a $15,000 loss on the property. In year 2, Patel’s AGI was $140,000 and Patel sustained a $10,000 loss on the property. In year 3, Patel sold the property for $175,000. What amount of gain or loss must Patel report on Patel’s year 3 tax return as a result of the sale? Assume Patel did not actively participate in the rental activity in any of the three years.

a. $25,000

b. $0 (no income or loss)

c. $5,000

d. $20,000