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

Amount Realized	155000
Adjusted Basis	-45000
Total gain	110000
suspended loss ( 45000 + 80000)	-125000
Deductible (nonpassive) loss	-15000
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).	Correct
The passive activity loss cannot be deducted against salary and deduct a loss from a passive activity to the extent of income generated by the taxpayer's other passive activities