Problem $11-52($LO $11-5)($Static$)$

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Tonya Jefferson $($single$),$ a sole proprietor, runs a successful lobbying business in Washington, DC$.$ She doesn't sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, to buy a place somewhere sunny and warm. Tonya's townhouse is worth $$1,000,000$ and the land is worth another $$1,000,000.$ The original basis in the townhouse was $$600,000,$ and she has claimed $$250,000$ of depreciation deductions against the asset over the years. The original basis in the land was $$500,000.$ Tonya has located a buyer that would like to finalize the transaction in December of the current year. Tonya's marginal ordinary income tax rate is $35$ percent, and her capital gains tax rate is $20$ percent.

Problem $11-52$ Part$-$c $($Static$)$

c$.$ As Tonya's tax adviser, you suggest that Tonya sell the townhouse in year $7$ to reduce her taxes.

Required:

c$1.$ What is the character of the gain or loss if Tonya sells the townhouse in year $7?$

c$2.$ What is the tax liability $($benefit$)$ from the gain or loss Tonya recognizes on the sale in year $7?$