Serena, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as 1231 assets. The first is machinery and will generate a $10,000 1231 loss on the sale. The second is land that will generate a $7,000 1231 gain on the sale. Serenas ordinary marginal tax rate is 32 percent. Serena can sell both assets at the end of year 1, or sell one asset at the end of year 1, and the other asset at the beginning of year 2.

You are Serenas tax advisor. She has come to you for advice on the timing of the sales of the two assets to minimize her tax liability. Serena will need to understand the tax cost or benefit for any alternative. You can ignore the time value of money consequences.

What is your recommendation?