Salvador Owns a Passive Activity That Has a Basis of $44,000

question 115

Multiple Choice

Salvador owns a passive activity that has a basis of $44,000 and a suspended loss of $18,000. Salvador's taxable income from active and portfolio income is $55,000. If Salvador's sells the passive activity for $56,000 how will he report the transaction on his tax return?
I.Salvador will report an ordinary loss of $18,000.
II.Salvador will report a capital gain of $12,000.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Perfectly Inelastic

A situation where the demand or supply for a good does not change in response to changes in price.

Demand Curve

A graph that shows the relationship between the quantity of a good demanded and its price.

Completely Vertical

In economics, this can refer to a supply curve that is perfectly vertical, indicating that the quantity supplied is completely unresponsive to changes in price.

Price Elasticity of Demand

The extent to which the demand for a good adjusts in response to price fluctuations.