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.
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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:

Activity Variance

The difference between the budgeted amount of activity and the actual amount of activity, often analyzed in budgeting and costing practices.

Selling

The act of transferring ownership of a product or service from one entity to another in exchange for money, goods, services, or other forms of value.

Administrative Expense

Costs related to the general operation of a business that cannot be directly linked to any specific business activity, product, or service.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels of a company, allowing for more accurate budgeting.