Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended losses of $80,000.All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

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Upon death, the basis of the passive activity is stepped up to its fair market value, and the suspended losses are lost if not previously deducted. They do not become fully deductible on the decedent's final income tax return.

Kim Dies Owning a Passive Activity with a Basis of $75,000