On December 1, 2016, Lavender Manufacturing Company (a corporation) purchased another company's assets, including a patent. The patent was used in Lavender's manufacturing operations; $49,500 was allocated to the patent, and it was amortized at the rate of $275 per month. On July 30, 2018, Lavender sold the patent for $95,000. Twenty months of amortization had been taken on the patent. a. Lavender has X of ordinary income due to recapture and x of 5 1231 gain Feedback b. Complete the letter to Lavender's controller, Bill Cubit, discussing the treatment of the gain. Raabe, Young, Nellen, & Maloney, CPAs 5191 Natorp Boulevard Mason, OH 45040 November 23, 2018 Mr. Bill Cubit, Controller Lavender Manufacturing Company 6734 Grover Street Boothbay Harbor, ME 04538 Dear Mr. Cubit: Thank you for the opportunity to respond to your question concerning the tax treatment of the gain from the disposition of the patent. As you know, amortization of $275 per month has been taken on this patent since it was acquired on December 1, 2016. That amortization totaled ordinary income , because it is recaptured by 1245 . The balance of the gain is 1231, and it will be taxed as x when you disposed of the patent on July 30, 2018. This amount is taxable as long-term capital gain ,as no other business property dispositions have occurred this year