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.

Required:

a$1.$ What amount of gain or loss does Tonya recognize on the sale?

a$2.$ What is the character of the gain or loss?

a$3.$ What effect does the gain or loss have on her tax liability?

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Required a$1$

What effect does the gain or loss have on her tax liability?

Tax liability

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