Flora company owed $95,000, a debt incurred to purchase land that serves as security for the debt. if flora had borrowed the funds from a bank, the bank accepts $85,000 in full payment of the debt, and flora is solvent after the transfer, flora does not recognize income, but the company must reduce the cost of the land by $10,000. if flora had borrowed the funds from a bank, and the bank accepts $85,000 in full payment of the debt, when the value of the property is $80,000, flora can deduct a loss. if flora transfers to the bank other property, with a basis of $90,000 and a fair market value of $95,000, in full payment of the debt, flora can recognize a $5,000 loss. if the $95,000 is owed to the person who sold the property to flora, and the creditor accepts $85,000 in full payment for the debt, flora does not recognize gain but must reduce its basis in the land. none of these.
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