Ruth subdivided a piece of real estate she had owned for seven years into 12 lots. Each lot was apportioned a $10,000 basis. In year 2, she sold four lots for $15,000 apiece with selling expenses of $500 per lot.

1. How much and what kind of gain or loss does Ruth have?

2. If in year 3 she sold two more lots for $20,000 apiece and incurred selling expenses of $500 per lot, how much and what kind of gain or loss does she have?