In Year One, Othello purchased a vacation home in a hamlet. He paid $100,000 for the residence. By the end of Year Two, Othello decided to sell the property, but no one made an offer to purchase it. At the beginning of Year Three, when the property was worth only $70,000, Othello decided to rent out the property to unrelated tenants. Because the property was then held for the production of rental income, Othello validly claimed depreciation deductions of $5,000 with respect to the vacation home in each of Years Three and Four ($10,000 in total deductions). On January 1, Year Five, Othello sold the property to Portia, an unrelated purchaser, for $50,000.

(a) What are the federal income tax consequences of the Year Five sale to Othello, ignoring any depreciation deduction to which Othello may be entitled in Year Five?

(b) How would the answer to (a) change if Othello originally acquired the home as rental property in Year One, claimed $10,000 of depreciation in Years One and Two, and converted the property to his personal vacation home at the beginning of Year Three, when the property was worth $70,000?