Question

Nell earns $50,000 salary income in the current year. In addition, Nell sells a passive activity with an adjusted basis of $45,000 for $155,000 in the current year. Suspended losses attributable to this property total $45,000. Nell owns another separate passive activity which has $10,000 passive loss for the current year and $80,000 suspended passive losses from prior years. Nell will report the following on her current year income tax return (as a result of just these transactions):

a. $$50,000 salary income and an additional $110,000 from the sale of the passive activity

b. $25,000 salary income and $0 additional taxable income (because all $110,000 gain from the sale of the passive activity offset by losses and an additional $25,000 of passive loss is available to deduct against the salary income.

c. $50,000 salary income and $0 additional taxable income (because all $110,000 gain from the sale of the passive activity is offset by losses).

d. $50,000 salary income and an additional $65,000 gain from the sale of the passive activity.

e. None of a-d is correct

Answer 1

As the name implies, a passive activity loss is a financial loss that comes from a business or investment activity in which you do not play an active role.

any unused passive losses can be carried forward to future tax years

Answer - C