Juan owns land that serves as security for a $60,000 mortgage. Juan is personally liable for the mortgage. His basis in the land is $20,000 and the fair market value is $50,000. The bank forecloses on the property. What is the tax consequence to Juan?

1. a) Juan recognize income in the amount of his discharge of indebtedness; $60,000.

2. b) Juan has a gain on the transfer and must recognize income of $40,000.

3. c) Juan has $40,000 of income; a gain of $30,000 on the transfer and discharge of

   indebtedness of $10,000

4. d) Both (a) and (b)

5. e) None of the above