Inventory a. Does Joe have loss on the sale? If so, how much and how did you calculate it? b. Is the loss an ordinary or capital loss? Please explain why. 2. Machinery a. Does Joe have a gain on the sale? If so, how much and how did you calculate the gain? b. Is the gain ordinary income, capital gain, or some income that fits into each category? Please explain why and describe the application of sections 1231 and 1245 to the sale of the machinery. 3. Building a. Does Joe have a gain on the sale? If so, how much and how did you calculate the gain? b. Is the gain ordinary income, capital gain, or some income that fits into each category? Please explain why and describe the application of sections 1231 and 1250 to the sale of the building.

Joe Taxpayer plans to sell the business assets that he used in his trade or business. The items being sold are included in the following table. The column "Original Cost" is the price that Joe paid to acquire the asset. "Adjusted Basis after Tax Depreciation" is the basis reduced for depreciation expense already taken on the asset. "FMV @ Time of Sale & Purchase Price" is the amount that a buyer pays Joe for the asset. For purposes of this question, assume that Joe does not operate as a corporation. Please review the table that follows and then answer the questions that follow. ASSET INVENTORY ORIGINAL COST ADJUSTED TAX BASIS AFTER FMV @ TIME OF SALE & PURCHASE 700,000 DEPRECIATION 700,000 PRICE 650,000 MACHINERY 1,000,000 800,000 900,000 BUILDING 5,000,000 4,600,000 5,200,000