Mr. and Mrs. Kilo purchased their first home in 2003 for $240,000. They sold this home in 2007 for $210,000. They purchased their second home in 2008 for $435,000 and sold it this year for $1,150,000.

a. Did the Kilos recognize a deductible loss on the 2007 sale of their first home?

b. Compute the income tax and Medicare contribution tax on the Kilos’ gain on the sale of their home this year if their preferential rate on long-term capital gain is 20 percent.

Assume the taxable year is 2018.