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:

Political Action

Activities undertaken by individuals or groups to influence or participate in politics or public policy.

Economics of Collective Decision Making

The study of how decisions are made in groups, societies, or organizations where individual choices affect the collective.

Public Choice Analysis

A branch of economics that studies the decision-making processes of government bodies as well as the behavior of voters, politicians, and government officials.

James Buchanan

An American economist known for his work on public choice theory, which explains how political decision-making processes affect economic policies, and the recipient of the Nobel Memorial Prize in Economic Sciences in 1986.