Jesse owns a duplex used as residential rental property. The duplex cost $100,000 in 1986, and 10% of the cost was allocated to the land. Total cost-recovery deductions allowed amount to $90,000. The statutory percentages were used to compute cost-recovery deductions. If the straight-line method of cost recovery were used instead, $90,000 of cost-recovery deductions would have been allowed.
a. What is the amount of recognized gain and the character of the gain if Jesse sells the duplex for $125,000 with 10% of the price allocated to land?
b. Same as (a) except the building is an office building.