Four years ago,Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase.Otto has just sold the land for $900,000.How much of the $300,000 gain will be treated as ordinary income?
A)$0
B)$24,000
C)$40,000
D)$300,000

Question

Quizplus · Accepted Answer

The gain on the sale of the farmland is $300,000 ($900,000 selling price - $640,000 adjusted basis). Of this gain, $40,000 must be treated as ordinary income due to the deduction taken for soil and water conservation. Therefore, only choice C is correct.

Four Years Ago,Otto Purchased Farmland for $600,000 and Spent an Additional