Background:

Patrick, a long-time client of yours, recently sold a few assets from his business. He brings the following information to you, hoping you can help him make heads or tails of it:

He sold an old pickup truck for $9,888 cash.

He originally purchased the truck 10 years ago for $30,900. Since then, he has performed normal maintenance on it.

At one point, he had to replace the truck's transmission for an additional $3,589. (Because you knew about this, you have properly recorded depreciation on the truck for a total of $32,000 before the sale.)

He sold an office building that he owned and used in his business. He purchased it 15 years ago for $800,000. Since then, he has added major improvements to the building totaling $15,789.

The depreciation taken on the building and the improvements through the date of the sale is $400,000.

He sold the building for $978,000.

Task

Citing applicable tax law and regulations, prepare a tax memo explaining how to determine gain or loss on the two sales and how it will be taxed or deducted.