Caroyl Made a Gift to Tim of a Passive Activity

question 60

Multiple Choice

Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000, suspended losses of $20,000, and a fair market value of $80,000) . No gift tax resulted from the transfer.

• A) Tim's adjusted basis is $80,000, and Tim can deduct the $20,000 of suspended losses in the future.
• B) Tim's adjusted basis is $80,000.
• C) Tim's adjusted basis is $50,000, and the suspended losses are lost.
• D) Tim's adjusted basis is $50,000, and Tim can deduct the $20,000 of suspended losses in the future.
• E) None of the above.

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Definitions:

Accelerated Depreciation

A method of depreciation that allows for a higher expense deduction in the early years of an asset's life, decreasing its book value more quickly.

Goodwill

Goodwill is an intangible asset that arises when a company acquires another business for a price higher than the fair value of its net tangible assets, representing aspects such as brand reputation and customer loyalty.

Times Interest

A financial ratio that measures a company's ability to meet its interest payments based on current earnings. Often referred to as the interest coverage ratio.

Stock Market

A public market for the trading of company stock and derivatives at agreed upon prices.