Problem: Marshall acquired raw land held for investment for $100,000 cash. He sold the land to Paul three years later for $75,000. The purchase price was payable $25,000 cash plus a $50,000 nonrecourse note payable to Marshall secured by the land. The note was payable over a three-year period of time.
Which of the following statements is correct assuming the loan bears an adequate interest rate for tax purposes?
Select one:
a. Because the loan is contingent, Paul's cost basis is $25,000 on the date of purchase.
b. Because the loan is nonrecourse, Marshall's amount realized is $25,000 on the date of sale.
c. Because the loan is nonrecourse, Paul's cost basis is $25,000 on the date of purchase.
d. Because the loan is a seller loan with payments that occur after the initial year of sale, Marshall may report the transaction using the installment sales method of reporting loss.
e. None of the above statements are correct.