John and Karen are unrelated individuals. John sold land that is Sec. 1231 property held for three years and recognized a $50,000 gain. Karen sold a building that is Sec. 1231 property held for three years and recognized a $50,000 gain. Straight-line depreciation was used. John and Karen both have a 32% tax rate, no other transactions involving capital assets or 1231 assets, and no nonrecaptured Sec. 1231 losses. Except for the sales of different assets, their tax situation is exactly the same. As a result of selling his Sec. 1231 property, will John pay more, less or the same amount of taxes than Karen as a result of selling her Sec. 1231 property? Explain.

A. John and Karen will pay the same amount of tax because both have recognized a $50,000 gain and both will pay 32% tax on the gain.

B. John will pay more than what Karen will pay because John's gain on the sale of land will be taxed at a 32% tax rate and Karen will receive preferential tax treatment on the sale of the building and will pay 15% tax on the gain.

C. John will pay less than what Karen will pay because some or all of Karen's Sec. 1231 gain is unrecaptured Sec. 1250 gain that will be taxed at 25%, and John will pay 15% on the gain from the sale of land.

D. John will pay more than what Karen will pay because John's gain on the sale of land will be taxed at a 25% tax rate and Karen will pay 15% tax on the gain from the sale of the building.