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    Passive Loss: Leon sells his interest in a passive activity

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    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:

    a. Adjusted basis if this investment is $35,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000.

    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.

    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.

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    https://brainmass.com/business/accounting/passive-loss-leon-sells-his-interest-in-a-passive-activity-208317

    Solution Preview

    a. Sale of $100,000 - adjusted basis of $35,000 - passive losses carrying of $40,000 = $25,000 gain reportable

    b. Sale of $100,000 - adjusted basis of $75,000 - passive losses of $40,000 = $15,000 loss reportable.

    c. Sale of $100,000 - adjusted basis of $75,000 - passive losses of $40,000 = $15,000 loss ...

    Solution Summary

    The solution shows the calculations for each of the three independent fact patterns. Following that are 3 paragraphs to better explain the concepts of passive activity losses and how the suspended losses are dealt with.

    $2.19

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