Lyle Company owns commercial real estate with a $360,000 initial cost basis and $285,000 accumulated straight-line depreciation.

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Lyle Company owns commercial real estate with a $360,000 initial cost basis and $285,000 accumulated straight-line depreciation. The real estate is subject to a $120,000 recourse mortgage and has an appraised FMV of only $100,000. The mortgage holder is threatening to foreclose on the real estate because Lyle failed to make the last four mortgage payments. Determine the tax consequences of foreclosure assuming that:
a. Lyle must pay $20,000 cash to the mortgage holder in full satisfaction of its recourse debt.
b. The mortgage holder agrees to accept the real estate in full satisfaction of the recourse debt.
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