Several years ago Nicolas, a timber dealer, purchased a tract of land with a substantial stand of trees on it. The land cost $8,000, and the timber cost $250,000. On the first day of 2018, the timber was appraised at $325,000. In August 2018, Nicolas cut the timber and sold it for $360,000. Nicolas elects to treat the cutting as a sale or exchange under § 1231. What is the amount and character of Nicolas's gain or loss?

Nicolas has § 1231 gain = $75000

Nicolas has Ordinary gain = $35000

Explanation:

given data

land cost = $8,000

timber cost = $250,000

timber appraised = $325,000

timber sold = $360,000

to find out

amount and character of Nicolas gain or loss

solution

we get here first gain §1231 gain that is

gain §1231 gain = Appraised value of Timber - Adjusted basis ... 1

put here value

§ 1231 gain = $325000 - $250000

§ 1231 gain = $75000

and

now Ordinary gain will be here

Ordinary gain = Selling price - Appraised value of Timber ... 2

Ordinary gain = $360000 - $325000

Ordinary gain = $35000