Willie Is the Owner of Vacant Land That He Purchased

question 8

Essay

Willie is the owner of vacant land that he purchased in 2013 for $1,400,000 and held for investment. On January 22, 2016, he was paid $145,000 for a thirteen-month option on the land by Susan. Susan could buy the land for an additional $1,200,000 by exercising the option. Susan had hoped to build a luxury home on the land, but was unable to get approval to build a big enough home to satisfy her needs. Consequently, Susan did not exercise her option and the option expired on February 22, 2017. (1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?

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Definitions:

Intrinsic Rewards

Satisfaction a person receives in the process of performing a particular action or activity, coming from within the individual rather than from external rewards.

Performance

The act, process, or capability of performing actions efficiently and effectively according to set standards.

Occurrence

An event that happens or takes place.

Chance

The occurrence of events in the absence of any deliberate design or predictable cause.