Brent Is Single and Owns a Passive Activity That Has

question 90

Essay

Brent is single and owns a passive activity that has a basis of $25,000 and a suspended passive loss of $8,000. He acquired the passive activity in 2010. Brent's taxable income from active and portfolio income is $85,000, and he has no other capital gains or losses for the year.
a.What is the effect on Brent's taxable income if he sells the passive activity for $42,000?
b.What is the effect on Brent's taxable income if he sells the passive activity for $13,000?
c.What is the effect on Brent's taxable income if he dies this year while the fair market value of the passive activity is $30,000?
d.What is the effect on Brent's taxable income if he dies this year while the fair market value of the passive activity is $18,000?
e.What is the effect on Brent's taxable income if he gives the passive activity to his brother Norm when the fair market value of the passive activity is $30,000?

---

Definitions:

Fixed Costs

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Selling Price

The fixed or negotiated amount at which a product or service is sold to customers.

Fixed Costs

Business costs that do not vary with the amount of goods produced or the volume of sales.

Material Cost

The expense incurred to acquire raw materials needed to produce a product or complete a project.