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1 . Mortgagor purchases a parcel of land from Seller for $ 1 0 0 , 0 0 0 . Mortgagor borrows $ 8 0

1.Mortgagor purchases a parcel of land from Seller for $100,000. Mortgagor borrows $80,000 from Bank and pays that amount and an additional $20,000 of cash to Seller giving Bank a nonrecourse mortgage on the land. The land is the security for the mortgage which bears an adequate interest rate.

(b)Two years later when the land has appreciated in value to $300,000 and Mortgagor has paid only interest on the $80,000 mortgage, Mortgagor takes out a second nonrecourse mortgage of $100,000 with adequate rates of interest from Bank again using the land as security. Does Mortgagor have income when she borrows the $100,000? See Woodsam Associates, Inc. v. Commissioner, 198 F.2d 357(2d Cir.1952).

(c)What is Mortgagors basis in the land if the $100,000 of mortgage proceeds are used to improve the land?

(d)What is Mortgagors basis in the land if the $100,000 of mortgage proceeds are used to purchase stocks and bonds worth $100,000?

(e)What result under the facts of (d), above, if when the principal amount of the two mortgages is still $180,000 and the land is still worth $300,000, Mortgagor sells the property subject to both mortgages to Purchaser for $120,000 of cash? What is Purchasers cost basis in the land?



(h)What results to Mortgagor under the facts of (d), above, if the land declines in value from $300,000 to $180,000 and Mortgagor transfers the land by means of a quitclaim deed to Bank? See Parker v. Delaney, 186 F.2d 455(1st Cir.1950).


(i)What results to Mortgagor under the facts of (h), above, if the land declines in value from $300,000 to $170,000 at the time of the quitclaim deed?

2.Investor purchased three acres of land, each acre worth $100,000 for $300,000. Investor sold one of the acres in year one for $140,000 and a second in year two for $160,000. The total amount realized by Investor was $300,000 which is not in excess of her total purchase price. Does Investor have any gain or loss on the sales? 

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