Consider the following two scenarios. A taxpayer acquires a rental property in April 2019 for $1 million (the same case as the depreciation assignment; $800,000 assigned to building; 27.5year depreciation) and sells it for $1.5 million either on:

(a) December 31, 2019 or on

(b) December 31, 2020

1. What is the gain on sale? Remember to add back the value of the land when calculating the gain. Show calculations. You will need the correct solutions to the Depreciation1 assignment (please see posted solution under Course Documents available after you submit Depreciation1).

Scenario 1: sale on 12/31/19

Scenario 2: sale on 12/31/20

2. What kind of gain is this? Ordinary or Capital? Explain why

Scenario 1

Scenario 2

3. Based on your answers above, calculate the tax owed on the gain.

Scenario 1

Scenario 2