Question

Exercise 11-28 (Algorithmic) (LO. 3) Lucy sells her partnership interest, a passive activity, with an adjusted basis of $341,500 for $375,650. In addition, she has current and suspended losses of $51,225 associated with the partnership and has no other passive activities. a. Calculate Lucy's total gain and her current deductible loss. Her total gain is $ 25,000 X and her deductible loss is $ -3,000 X. b. What type of income can the deductible loss offset? Lucy's deductible loss is offset against only active and passive activity income X .

Answer 1

Answer :

a. Her total gain is $ 34,150 andher deductible loss is $ -17,075

Calculation:

Net Sales Price	375,650
(less)Adjusted basis	341,500
Total Gain	34,150
(less)Suspended basis	51,225
Deductible Loss (Not Passive)	(17,075)

b. Lucy's deductible loss is offset against active and portfolio income.

Explanation: If current and suspendable lossed of passive activiry exceed the gain realized, any loss from the activity for tax year in excess of net gain from all passive activities is treated as a loss that is not from a passive activity. Since $17,075 is not passive loss, it can be offset against active income and portfolio income.