Kat acquired only one tract of land seven years ago as an investment. In order to sell the land at a higher price, she decides to subdivide it into 30 lots. She pays for improvements such as clearing and leveling, but the improvements are not considered to be substantial. Each lot has a basis of $10,000, and a selling price of $20,000. Selling expenses of $670 were incurred to sell two lots last year. This year, fifteen lots are sold, and selling expenses amount to $2,200.

Requirement

First, calculate the total gain from the sale of lots in the prior year, and the allocation of that gain between ordinary income and a capital gain.

How much ordinary income and capital gain must be recognized in the prior and current year?

Calculate the ordinary income, capital gain, and total gain that should be input for the prior and current year.