Question

Rose dies with passive activity property having an adjusted basis of $73,200, suspended losses of $23,424, and a fair market value at the date of her death of $102,480. Of the $23,424 suspended loss existing at the time of Rose's death, how much is deductible on her final return or by the beneficiary?

The basis for the property is stepped-up to $_______ ; therefore, none of the $23,424 suspended loss is deductible on Rose's final return or by the beneficiary.

Answer 1

Answer : Amount deductible on Rose final return or by the beneficiary = $0.

The basis for the property is stepped-up to $102,480 ; therefore, none of the $23,424 suspended loss is deductible on Rose's final return or by the beneficiary.

Explanation: As per IRC section 469(g)(2), when a  passive activity property is transfer due to death of taxpayer than the suspended losses can be deducted to an extent such loss is greater than the excess amount of FMV at the date of death in compare to adjusted basis.

In the given case , the increase in basis = $29,280 ($102,480 - $73,200) . Since suspended losses of $23,424 is less than the increase in basis , no part of suspended loss is deductible on Rose's final return or by the beneficiary.