Leon sells his interest in a passive activity for $100,000. Determine the tax ef

Question

Leon sells his interest in a passive activity for $100,000. Determine the tax effect of the sale based on each of the following independent facts:

Adjusted basis in this investment is $35,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000.

Adjusted basis in this investment is $75,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000.

Adjusted basis in this investment is $75,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000. In addition, suspended credits total $10,000.

Explanation / Answer

a.

Adjusted basis in this investment is $35,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000

Sale of $100,000 - adjusted basis of $35,000 - passive losses carrying of $40,000

= $25,000 gain reportable

b.

Adjusted basis in this investment is $75,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000

Sale of $100,000 - adjusted basis of $75,000 - passive losses of $40,000

= $15,000 loss reportable.

c.

Adjusted basis in this investment is $75,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000. In addition, suspended credits total $10,000.

Sale of $100,000 - adjusted basis of $75,000 - passive losses of $40,000

= $15,000 loss

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