McGraw-Hill's Taxation of Individuals 3rd Edition by Brian Spilker,Benjamin Ayers,John Robinson,Edmund Outslay ,Ronald Worsham,John Barrick,Connie Weaver

Exercise 25

{Planning} On January 1 of year 1, Nick and Rachel Sutton purchased a parcel of undeveloped land as an investment.The purchase price of the land was $150,000.They paid for the property by making a down payment of $50,000 and borrowing $100,000 from the bank at an interest rate of 6 percent per year.At the end of the first year, the Suttons paid $6,000 of interest to the bank.During year 1, the Suttons only source of income was salary.On December 31 of year 2, the Suttons paid $6,000 of interest to the bank and sold the land for $210,000.They used $100,000 of the sale proceeds to pay off the $100,000 loan.The Suttons itemize deductions and are subject to a marginal ordinary income tax rate of 35 percent.
a.Should the Suttons treat the capital gain from the land sale as investment income in year 2 in order to minimize their year 2 tax bill
b.How much does this cost or save them in year 2