1. Olivia wants to buy some vacant land for investment purposes. She cannot afford the full purchase price. Instead, Olivia pays the landowner $14,500 to obtain an option to buy the land for $290,000 anytime in the next four years. Fourteen months after purchasing the option, Olivia sells the option for $18,125. What is the amount and character of Olivia's gain or loss?

She has a long-term capital gain of .................

2.

Shannon owns two items of business equipment. Both were purchased in 2016 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Shannon is considering selling these assets in 2020. One of them is worth $60,000, and the other is worth $23,000. Because both items were used in her business, Shannon simply assumes that the loss on one will be offset against the gain from the other and that the net gain or loss will increase or reduce her business income.

Which of the following must Shannon determine in order to properly handle this transaction? Select "Yes" if she must determine it; otherwise select "No".

a.	Whether she plans to purchase any property during the year.	No
b.	The outcome of the 1231 netting process.	Yes
c.	Whether the property is a 1231 asset, a capital asset, or an ordinary asset.	Yes
d.	Whether 1245 depreciation recapture will apply.	Yes

What is the amount and character of Shannon's gain or loss for each asset?

Asset 1: Cost, $100,000; adjusted basis, $37,490; sales price, $60,000:

Due to 1245 depreciation recapture , the entire gain of .....................$ will be treated as ordinary income .

Asset 2: Cost, $100,000; adjusted basis, $37,490; sales price, $23,000:

The entire loss of ..........................$ will be treated as an ordinary loss , because 1245 depreciation recapture applies only when there is a gain on the sale of an asset.