A partner plans to sell their partnership interest. They have a suspended passive loss of $10,000 from the partnership. They sell the interest to an unrelated party for a $15,000 gain. What is the tax result?

Answer options:

Gain $15,000; Loss remains suspended.

Gain $5,000; Loss disappears.

Gain $15,000; Suspended loss $10,000 is released and deductible.

Gain $15,000; Loss is transferred to buyer.

How to approach this question

Sale of Partnership Interest = Disposition of Passive Activity. Suspended losses are released.

Full Answer

C.Gain $15,000; Suspended loss $10,000 is released and deductible.✓ Correct

IRC §469(g). Complete disposition of a passive activity triggers the release of suspended losses. The gain is recognized, and the loss is allowed in full.

Common mistakes

Thinking losses are transferred to the buyer.

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