Question

Leon sells his interest in a passive activity for $159,000. Determine the tax effect of the sale based on each of the following independent facts:

a. Adjusted basis in this investment is $55,650. Losses from prior years that were not deductible due to the passive activity loss restrictions total $61,215.

b. Assume the same sales price but the adjusted basis in this investment is $119,250. Losses from prior years that were not deductible due to the passive activity loss restrictions total $61,215.

The deductible loss  is $.

The suspended losses at the end of the year are $.

c. Assume the same sales price but the adjusted basis in this investment is $119,250. Losses from prior years that were not deductible due to the passive activity loss restrictions total $61,215. In addition, suspended credits total $15,900.

The deductible loss  is $.

The suspended losses at the end of the year are $.

The suspended credits at the end of the year are carried forward .

Answer 1

a	Particulars	Amount ($)
	Net sales price	159000
	Less: adjusted basis	55650
	Total gain	103350
	Less: suspended loss	61215
	Taxable gain	42135
b	Particulars	Amount ($)
	Net sales price	159000
	Less: adjusted basis	119250
	Total gain	39750
	Less: suspended loss	61215
	Deductible loss	-21465
	$21465 deductible loss is offset against active income
c	Particulars	Amount ($)
	Net sales price	159000
	Less: adjusted basis	119250
	Total gain	39750
	Less: suspended loss	61215
	Deductible loss	-21465
	The suspended credit have lost because the taxpayer has losses
	from the passive activities and the sale of passive activity did
	not generate any income.