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.
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
