Question

Emilio owns vacant land he is holding for investment. two years ago he granted an option to purchase the land. the option grantee paid $25,000 for the option. this year the option expired unexercised. as a result, emilio has:

a. none of the above.
b. $25,000 long-term capital gain.
c. $25,000 short-term capital gain.
d. $25,000 ordinary gain.
e. no recognized gain or loss.

Answer 1

Emilio has a b. $25,000 long-term capital gain after the option to purchase his investment land expired unexercised, as it was associated with a long-term investment held for more than one year.

Step-by-step explanation:

When Emilio granted an option to purchase the land for $25,000, and the option expired without being exercised, Emilio realized a financial benefit from the sale of the option itself. This $25,000 is generally treated as a capital gain because it's associated with an investment asset. However, the crucial factor in determining the type of gain is the holding period. Since the land was held for investment purposes and the option expired two years after it was granted, the gain is considered a long-term capital gain, assuming the land and the option were held for more than one year.

Therefore, the correct answer to whether Emilio has any recognized gain or loss when the option expired is that he has a $25,000 long-term capital gain. This is because the option was an investment in the land and was held for a period longer than one year, which qualifies the gain as long-term under the Internal Revenue Code.