ExpertMedium1 markMultiple Choice
CPA · Question 56 · Area III: Entity Tax Planning
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?
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:
A.
Gain $15,000; Loss remains suspended.
B.
Gain $5,000; Loss disappears.
C.
Gain $15,000; Suspended loss $10,000 is released and deductible.
D.
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
C
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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