Q. Anne sells a rental house for $300,000 (adjusted basis of $255,000). During her ownership, $60,000...

Q. Anne sells a rental house for $300,000 (adjusted basis of $255,000). During her ownership, $60,000 of losses have been suspended under the passive activity loss rules. Determine the tax treatment to Anne on the disposition of the property.

Expert Solution

Passive activity loss rules are a set of IRS rules that prohibit using passive losses to offset earned or ordinary income. If the taxpayer does not materially participate in the activity that is producing the passive losses, those losses can be matched only against passive income. If there is no passive income, no loss can be deducted. Passive activity losses can only be applied in the current year. However, if they exceed passive income they can be carried forward without limitation; they cannot be carried back. So, for our case:

Sale of rental house for $300,000 against adjusted basis of $255,000 leads to passive gain of $ 45,000.

During her ownership, $60,000 of losses which got suspended can now be adjusted against the passive gain under the passive activity loss rules. The losses are more than the gain, therefore ZERO taxable passive gains for the current year and $ 45000 - $ 60,000 = - $ 15,000 can be carried forward to next year(s) for adjustment against any passive gain in upcoming years.

Note: Request you to please share the feedback and rate the answer to enable me to understand the quality of answer

ekkarill92 answered 1 year ago

Macedona Corporation distributes Land (Adjusted Basis of $60,000 and Fair Market Value of $120,000) as a...

Macedona Corporation distributes Land (Adjusted Basis of $60,000 and Fair Market Value of $120,000) as a Property Dividend to its shareholders. The Land is subject to a liability of $160,000. As a result of this distribution, Macedona Corporation must Recognized Gain of: $0 $100,000 $60,000 $40,000

1. Bob owned a duplex used as rental property. The duplex had an adjusted basis to...

1. Bob owned a duplex used as rental property. The duplex had an adjusted basis to Bob of $86,000 and a fair market value of $300,000. Bob transferred the duplex to his brother, Carl, in exchange for a triplex that Carl owned. The triplex had an adjusted basis to Carl of $279,000 and a fair market value of $300,000. Two months after the exchange, Carl sold the duplex to his business associate to whom he was not related for $312,000....

You are going to purchase a house which costs $300,000. Your annual income is currently $60,000....

You are going to purchase a house which costs $300,000. Your annual income is currently $60,000. The bank you are going to get the mortgage from uses a 28% qualifying rate (a maximum of 28% of your gross monthly income can go to your monthly payment). How much will you need to put down in order to buy this house? Use the following parameters:  30 year mortgage  4.7% annual interest rate

Missy, age 30, has owned her principal residence (adjusted basis of $225,000) for five years. During...

Missy, age 30, has owned her principal residence (adjusted basis of $225,000) for five years. During the first three years of ownership, she occupied it as her principal residence. During the past two years, she was in graduate school and rented the residence. After graduate school, Missy returned to the same location where she previously worked. At this point, she purchased another residence for $400,000 and listed her old residence for sale at $340,000. Due to a slow real estate...

20. Which one of the following does not affect the adjusted basis of a house held...

20. Which one of the following does not affect the adjusted basis of a house held as rental property? A) painting of more than 50% of the rooms in the home B) depreciation deduction C) adding a new room to the house D) installation of a completely new heating system 21. On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except A) home mortgage interest B) one-half of self employment tax. C)...

On January 1, 2017, Barry Barker owned rental property which had an adjusted basis to him...

On January 1, 2017, Barry Barker owned rental property which had an adjusted basis to him of $350,000. Daniel made the following expenditures during 2017: Ordinary painting of building $ 6,000 Repair of roof section (useful life not appreciably extended) 1,500 Legal fees paid to defend title 3,000 Property taxes 7,000 Assessment for local street improvement (value of property increased greatly) 5,000 In 2017, which of these expenditures does Barry capitalize and which does he expense? What is his adjusted basis...

On January 1, 2019, Daniel Durrow owned a commercial rental property which had an adjusted basis...

On January 1, 2019, Daniel Durrow owned a commercial rental property which had an adjusted basis to him of $270,000. Daniel made the following expenditures during 2019: Ordinary painting of building $ 5,000 Repair of roof section (useful life not appreciably extended) 2,500 Legal fees paid to defend title 10,000 Property taxes 6,000 Assessment for local street improvement (value of property increased greatly) 15,000 What is Daniel’s basis in the rental property at the beginning of 2020 and how much...

Suzy contributed assets valued at $300,000 (basis of $200,000) in exchange for her 40% interest in...

Suzy contributed assets valued at $300,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining interest. Anna's property was encumbered by a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year: Sales $560,000 Utilities, salaries, and other operating expenses 360,000 Shart-term capital...

Steve Drake sells a rental house on January 1, 2017, and receives $120,000 cash and a...

Steve Drake sells a rental house on January 1, 2017, and receives $120,000 cash and a note for $45,000 at 10 percent interest. The purchaser also assumes the mortgage on the property of $35,000. Steve's original cost for the house was $180,000 and accumulated depreciation was $30,000 on the date of sale. He collects only the $120,000 down payment in the year of sale. a. If Steve elects to recognize the total gain on the property in the year of...

Steve Drake sells a rental house on January 1, 2019, and receives $100,000 cash and a...

Steve Drake sells a rental house on January 1, 2019, and receives $100,000 cash and a note for $50,000 at 7 percent interest. The purchaser also assumes the mortgage on the property of $25,000. Steve's original cost for the house was $170,000 on January 1, 2011 and accumulated depreciation was $27,000 on the date of sale. He collects only the $100,000 down payment in the year of sale. a. If Steve elects to recognize the total gain on the property...

Question