Alan sold all the depreciable assets of his business, calculated the gains and losses, and would like to know the final character of those gains and losses. Alan had $307,000 of adjusted gross income before considering the gains and losses from sale of the business assets. He had an unrecaptured 1231 lookback loss of $7,000.

Asset Purchase Date Sale Date Depreciation Gain (Loss)

Machine #1 10/10/18 11/11/20 $250,000 $61,000

Machine #2 10/02/18 11/11/20 54,000 (16,000)

Machine #3 09/23/16 11/11/20 175,000 32,000

Machine #4 09/23/16 11/11/20 30,000 58,000

Answer each of the following questions. Be sure to show and label all calculations.

1. Identify the initial classification/type of the gain or loss for each machine.
2. What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed?
3. What is the taxpayer's adjusted gross income (AGI)?
4. Specify whether ordinary or preferential rates apply to each component of AGI.