A taxpayer has a passive activity credit of $5,000 from a rental real estate activity. They have no passive income in the current year. They sell the entire rental activity in a fully taxable transaction in the current year. How is the suspended credit treated?

1. Understand Passive Credit Rules: Credits can only offset tax on passive income.<br/>2. Disposition Rule: Unlike passive losses (which are fully allowed on disposition), passive credits are NOT triggered by disposition.<br/>3. Election: The taxpayer can elect to increase the basis of the property by the amount of the suspended credit (up to the original basis reduction amount) to reduce gain on sale.