Lloyd and Melissa have a nonrecourse loan and default on their mortgage. After unsuccessful attempts to sell their home, they decided to give a deed in lieu of foreclosure to the lender. How do they treat this on their income tax return?

a. They must file a bad debt loss on their return

b. They must file a Schedule D

C. Form 4797 must be filled out

d. Nothing is reported since they voluntarily gave their home back to the lender