Joan sold depreciable property used in her business to Irene for $325,000 cash plus a ten year bond par value $200,000, and currently trading on the NYSE for $196,000. The property cost Joan $605,000 not including the $27,000 of capital improvements she made. During Joans ownership she erroneously deducted $315,000 of depreciation on the property and no depreciation on the improvements. The correct amount of depreciation that should have been deducted was $420,000 on the property and $12,000 on the improvements

Determine the amount of recognized gain or loss. Explain whether the gain or loss is capital or ordinary and cite the relevant code section(s) in support of your calculation. Discuss the various components of how you determined your answer.