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Several years ago, the taxpayer purchased a building for $300,000 by paying $50,000 in cash and borrowing $250,000 as a mortgage loan. This year when

Several years ago, the taxpayer purchased a building for $300,000 by paying $50,000 in cash and borrowing $250,000 as a mortgage loan. This year when the building was valued at $200,000 and the outstanding balance on the mortgage loan was $250,000, the taxpayer and lender agreed to reduce the loan balance to $175,000. Determine the amount that the taxpayer must include in income as the result of this debt forgiveness.

a) 25,000

b) 0

c) 75,000

d) 50,000

The correct answer is $25,000 - I just want to know how it was calculated.

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