1. Elmer sold machinery used in his business for $40,000. The machinery originally cost $75,000 and had $40,000 of accumulated depreciation at the time of the sale (basis of $35,000).

a. What is the gain or loss on the sale of the machinery?

b. Assuming Elmer is single and has taxable income of $180,000 before this transaction, how much tax will he owe (if a gain) or tax savings will he realize (if a loss) due to this transaction?

2. After 4 years of life in the slow lane, Doug decided to give up his goat ranch and move back to the big city. He sold the goat milking machine for $1,000. The machine originally cost $1,200 and had $920 of accumulated depreciation at the time of sale. Assuming Doug is single and has taxable income of $30,000 before this transaction, how much tax will Doug owe on the gain?