Question $3(3$ points$)$

Hal sold land held as an investment with a fair market value of $$100,000$ for $$36,000$ cash and a note for $$64,000$ that

was due in two years. The note bore interest of $7\%$ when the applicable Federal rate was $6\%.$ Hal's cost of the land

was $$40,000.$ Because of the buyer's good credit record and the high interest rate on the note, Hal thought the fair

market value of the note was at least $$74,000.$

Hal can elect to treat the $$36,000$ as a recovery of capital.

Hal must recognize $$60,000$ gain in the year of sale.

Hal must recognize $$36,000$ gain in the year of sale.

Unless Hal elects not to use the installment method, he must recognize $$21,600$ gain in the year of sale.