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:

Leases

Legal agreements granting use or occupation of property during a specified period in exchange for a specified rent or terms.

Duration

The duration or period that something exists or persists.

Property Owner

An individual or entity that holds legal title and ownership rights over a piece of property.

Less

Used to indicate a smaller amount or degree of something compared to another amount or thing.