Please check the given answers.
Question 1: When the amount due on an owner-financed mortgage is reduced by agreement of the buyer/owner and the seller/mortgage-holder, the tax consequences to for the buyer/owner is:
a. that the amount of the mortgage reduction is taxed to the buyer/owner.
b. that there is no tax effect on the buyer/owner.
c. the buyer/owner's basis in the property is reduced by the amount of the debt reduction.
d. the buyer/owner is required to recapture all depreciation taken on the property.
Question 2: When the amount due on an owner-financed mortgage is reduced by agreement of the buyer/owner and the seller/mortgage-holder, the tax consequences to for the seller/mortgage-holder is:
a. the gain recognized by the seller/mortgage-holder on the original sale is reduced by the amount of the debt reduction.
b. that there is no tax effect on the seller/mortgage-holder.
c. the seller/mortgage-holder recognizes a loss in the amount of the debt reduction.
d. the seller/mortgage-holder's basis in the property is reduced by the amount of the debt reduction.