Norris owns a passive activity that has a suspended loss of $12,000. The activity has a fair market value of $42,000 and his adjusted basis in the activity is $27,000.
I.If Norris gifts the property, he is allowed to deduct $3,000 of the suspended loss.
II.If Norris dies, none of the suspended loss is deductible.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Norris owns a passive activity that has a suspended loss of $12,000. The activity has a fair market value of $42,000 and his adjusted basis in the activity is $27,000.
I.If Norris gifts the property, he is allowed to deduct $3,000 of the suspended loss.
II.If Norris dies, none of the suspended loss is deductible.
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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.

Quizplus · Accepted Answer

When Norris gifts the property, the suspended loss is not deductible by either the giver or the receiver. If Norris dies, the suspended loss is fully deductible on his final tax return, contrary to statement II which incorrectly suggests it is not deductible at all.

Norris Owns a Passive Activity That Has a Suspended Loss