PROBLEM 1 (40 points) a. Kara sells a piece of construction equipment used in her excavation business (a sole proprietorship) in 2018. The equipment had an initial cost of $86,000 in 2016, and she has taken $70,000 in cost recovery via depreciation on the equipment. Kara sells the equipment for $96,000. What is the AMOUNT and CHARACTER of Kara's gain or loss for 2018 assuming no 1231 losses were deducted in the past five years? (10 points) b. Refer to part a. Kara had the following net Section 1231 results for each of the years shown. What amount of Kara's gain(s), from part a, will be taxable as a capital gain in 2018? (5 points) Net 1231 Gaine Tax Year 2013 2014 2015 2016 2017 Net 1231 Loss $18,000 $33,000 $12,000 $41,000+ $20,000 c. In addition to the gain on the construction equipment in parts a and b, Kara has the following capital gains and losses: A $3,000 STCG, a $4,000 LTCG, a $12,000 STCL, and a Collectibles gain of $15,000. Including any gain on the construction equipment taxable as a capital gain from part b, what net capital gain(s) or loss(es) does Kara report on her 2018 tax return? Be as specific as possible. (10 points) 2 d. Explain how depreciation recapture under IRC 1245 and 1250 can be described as an equitable, or "fair," treatment to taxpayers. (HINT: Think about marginal tax rates) (5 points)