1.1.21. Sally, a calendar-year, cash-basis taxpayer, operates a used furniture business in a building she owns. At the end of the current year, her basis in the building is $175,000, and the difference between the building's $100,000 value and the $150,000 mortgage reflects countrywide declining real property values. Because Sally's ability to make full payments on the mortgage that was taken out 2 years ago has decreased with demand for her inventory, the lender reduced the principal amount of the mortgage to $120,000 at year end. Which of the following statements is most accurate regarding the mortgage principal adjustment? A. The $30,000 adjustment is not includible in B. Sally must report $30,000 of gross income on C. Sally must reduce the property's basis on the D. Sally must either report $30,000 of gross gross income for the current year. her current-year tax return. first day of her next tax year income for the current year or reduce the property's basis next year. 1.1.22. Photo Gray worked as an employee in a camera store and made $15,000 each year. Photo also had a one-third interest in a calendar-year rtnership. The partnership had $9,000 of ordinary ncome for the year, none of which was distributed to the partners. Photo was also one of two beneficiaries of a simple trust set up by her rich uncle. The trust earned $4,000 of income, and it was all distributed to Photo during the year. Photo's gross income for the year is $15,000 B. $18,000 C. $19,000 D. $22,000