Heather purchased undeveloped land to drill for oil and gas. She spent $800,000 on intangible drilling costs during the year of purchase, which she elected to immediately deduct. During the three years of the well's operation, Heather deducted $1.2 million of cost depletion. Heather has sold the property for a $3 million gain. The gain will be treated as
A) $3 million Sec. 1231 gain.
B) $3 million ordinary gain.
C) $2 million ordinary income and $1 million Sec. 1231 gain.
D) $1.2 million ordinary income and $1.8 million Sec. 1231 gain.
C) $2 million ordinary income and $1 million Sec. 1231 gain.
Both the intangible drilling cost and the depletion must be recaptured as ordinary income, and the balance of the gain is Sec. 1231 gain.
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