Sarah Owns a Passive Activity That Has a Suspended Loss

question 57

Multiple Choice

Sarah owns a passive activity that has a suspended loss of $18,000. The activity has a fair market value of $35,000 and her adjusted basis in the activity is $20,000.
I.If Sarah sells the activity, she is allowed to deduct the $18,000 suspended loss.
II.If Sarah gifts the activity, she is only be allowed to deduct $15,000 of the suspended loss.
​

• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

---

Definitions:

Consumer Surplus

The difference between the maximum price a consumer is willing to pay for a product and the actual price they do pay.

Specific Tariff

A specific tariff is a fixed fee imposed by a government on each unit of imported or exported goods, rather than a percentage of their value.

Loss

A situation where expenses exceed revenues, resulting in negative financial performance.

Ad Valorem Tariff

A tax placed on goods based on a percentage of the goods' value.