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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.

#### 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.

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