When Kate died, she owned a passive activity with an adjusted basis of $100,000.Its fair market value at that date is $130,000.Suspended losses relating to the property were $45,000.
A)The heir's adjusted basis is $130,000, and Kate's final deduction is $15,000.
B)The heir's adjusted basis is $130,000, and Kate's final deduction is $45,000.
C)The heir's adjusted basis is $100,000, and Kate's final deduction is $45,000.
D)The heir's adjusted basis is $175,000, and Kate has no final deduction.
E)None of these applies here.

Question

Quizplus · Accepted Answer

The heir's adjusted basis in inherited property is generally the fair market value at the date of the decedent's death, which is $130,000 in this case. The suspended losses of $45,000 reduce the basis to $85,000, but since the fair market value is higher, the final deduction is the difference between the fair market value and the adjusted basis after accounting for the suspended losses, which is $15,000 ($130,000 - $115,000).

When Kate Died, She Owned a Passive Activity with an Adjusted