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Claire's vacation cabin was secured by a nonrecourse mortgage. This year the bank foreclosed on the property. At the time of the foreclosure: the principal balance of the loan was $290,000; the cabin's fair market value was $250,000; and Claire's adjusted basis was $270,000. Claire received no money or other property as part of the transaction. Which of the following correctly describes the income, gain, or loss that Claire realized as a result of this foreclosure? A) Ordinary income of $40,000 and capital loss of $20,000. B) Capital loss of $20,000. C) Capital gain of $20,000. D) Capital gain of $40,000.
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