Blitza Inc. owned real property used for 12 years in its business that was subject to a $294,500 nonrecourse mortgage. Blitza failed to make timely mortgage payments, so the creditor foreclosed. At date of foreclosure, Blitza's basis in the property was $300,000, and the property's appraised FMV was $260,000. Which of the following statements is true?
A. Blitza recognizes a $40,000 Section 1231 loss.
B. Blitza recognizes a $5,500 Section 1231 loss.
C. Both Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage and Blitza recognizes a $5,500 Section 1231 loss is true.
D. Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage.
Answer: C
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