Willie Is the Owner of Vacant Land That He Purchased

Essay

Willie is the owner of vacant land that he purchased in 2014 for $1,400,000 and held for investment. On January 22, 2017, he was paid $145,000 for a thirteen-month option on the land by Susan. Susan could buy the land for an additional $1,200,000 by exercising the option. Susan had hoped to build a luxury home on the land, but was unable to get approval to build a big enough home to satisfy her needs. Consequently, Susan did not exercise her option and the option expired on February 22, 2018. (1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?