1. Does Betty have to recognize any gain when she acquires the option?

1. If Betty does exercise the option- what is her adjusted basis in the land?

Betty acquired an option to buy Sam's raw land for an option price of $10,000. The option provided that Betty would either: (1) exercise the option in one year and buy the property for an additional $215,000 or (2) not exercise the option, let it lapse and forfeit the $10,000 to Sam.

1.