d is the correct answer. Mary's basis in the land is 500k. Her outstanding mortgage is 400k. The principal outstanding is still 400 in year 3 bc no interest. Here she paid 100k, took out 400k debt. She turned property over paying debt back with the property, which she paid 500k for, and didn't get her 100k back. Only cancellation of debt by repayment of what she went into debt for by giving the property back. Nonrecourse means tufts, one transaction. No debt discharge.