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Alfonso sells a passive activity in the current year for $800,000. His adjusted basis in the...

Alfonso sells a passive activity in the current year for $800,000. His adjusted basis in the activity is $200,000, and he uses the installment method of reporting the gain. The activity has suspended losses of $44,000. Alfonso receives $400,000 in the year of sale.

Enter as a percentage. For example, .35 would be entered as "35". %

a. What is his gross profit ratio on the sale? _________________%      

b. His recognized gain for the current year is $. ____________________

c. Alfonso can currently deduct $______________________ of suspended losses.

Solutions

Expert Solution

Given:

a) Sale of passive activity = $800,000

Adjusted basis = $200,000

Profit = 800,000 – 200,000

= $600,000

Gross profit ratio = Gross Profit / Sales

= 600,000 / 800,000

= 0.75 or 75%

Therefore, Gross profit ratio on sale is 75%

b) Recognized gain for the year = Amount received in the year of sale * gross profit ratio

Amount received in the year of sale = $400,000

Recognized gain = 400,000 * 0.75

= $300,000

Therefore, recognized gain is $300,000

c) Suspended losses deduction for the year:

Therefore, $22,000 of suspended losses can be deducted in the current year.

Suspended loss for the year Suspended loss deduction percent Gross profit 44,000 / 600,000 = 0.073333 or 7.3333% Suspended loss deduction = Recognized gain x Deduction percent = 300,000x 0.073333 = $21,999.9 or $22.000

ekkarill92 answered 11 months ago
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