ExpertHard1 markMultiple Choice
CPA · Question 66 · Area I: Individual Compliance and Planning
A taxpayer sells a passive activity with $20,000 of suspended losses to their brother. What happens to the suspended losses?
A taxpayer sells a passive activity with $20,000 of suspended losses to their brother. What happens to the suspended losses?
Answer options:
A.
They are fully deductible in the year of sale.
B.
They remain with the taxpayer and are suspended until the brother sells to an unrelated party.
C.
They transfer to the brother.
D.
They are lost forever.
How to approach this question
Related Party Sale of Passive Activity: Losses are NOT triggered. They remain suspended for the seller until the buyer sells to an outsider.
Full Answer
B.They remain with the taxpayer and are suspended until the brother sells to an unrelated party.✓ Correct
B
IRC §469(g)(1)(B). If the taxpayer disposes of the interest to a related party, the loss is not recognized until the taxable year in which the interest is acquired by an unrelated party.
Common mistakes
Thinking all dispositions release losses.
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