1.1.(TCO 2) On September 3, 20x1, Able purchased stock in Red Corporation (the stock is not small business stock) for $6,000. On December 31, 20x1, the stock was worth $8,500. On August 15, 20x2, Able was notified that the stock was worthless. How should Able report this item on his 20x1 and 20x2 tax returns?

2.(TCO 10) On June 1 of the current year, Tab converted a machine to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago, Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?