1. Sarah is an executive at Yellow Yogurt. Because she loves yogurt so much, she decides to buy a yogurt machine from her employer in April, 2021. The machine cost the company $5,000 (the wholesale price), Sarah pays $8,000 and it has a fair market value of $12,000 (price at which it is sold by the manufacturer to retail outlets).

A) What is Sarah's adjusted basis in the machine?

B) What impact, if any, does this have on her 2021 AGI (her other income is $92,000)?

2.Identify what type of gain or loss would be generated by the sale or exchange of the following assets (i.e. ordinary, capital, or Sec. 1231)

A. real estate lots sold by a developer

B. IBM stock held by an investor

C. a machine used in a trade or business and held for 5 years

D. a machine used in a trade or business and held for 9 months

E. a turkey held for 18 months

3.On July 1, 2021, Brandon purchased an option to buy 1,000 shares of General, Inc. at $30 per share. He purchased the option for $1,000. It was to remain in effect for six months. What would be the tax effects of the following:

A. On September 15, 2021, Brandon sells the option to his neighbor for $2,000. What is the amount and character (long-term/short-term) of his gain.

B. On December 31, 2021, he lets the option lapse because the price of the stock had declined. What is the amount and character of his loss?

C. What is the amount and character of the income to the option grantor upon the lapse of the option?