Smith bought a rental property in year 1 for $100,000. In year 1, Smith’s adjusted gross income (AGI) was $125,000 and Smith sustained a $30,000 loss on the property. In year 2, Smith’s AGI was $175,000 and Smith sustained a $20,000 loss on the property. In year 3, Smith sold the property for $155,000. What amount of gain or loss must Smith report on Smith’s year 3 tax return as a result of the sale? Assume Smith actively participated in the rental activity in all three years, but is not considered a real estate professional for tax purposes.

a. $17,500 gain

b. $0 (no gain or loss)

c. $22,500 gain

d. $20,000 gain