Consider the following two scenarios.The taxpayer sells the property acquired in April 2019 for $800,000 (rental real estate, 27.5 year depreciation) on December 31, 2019 or December 31, 2020 for $1,000,000.Assume the taxpayer is in the 37 percent tax bracket.

Scenario 1. Sale on 12/31/19

Scenario 2. Sale on 12/31/20

1. What is the gain on sale?Show calculations.

2. What kind of gain is this?Ordinary, Capital, or Section 1231?Explain why

Scenario 1

Scenario 2

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

Scenario 1

Scenario 2

4. Optional: Comment one what you have learned