Answer the following statements true (T) or false (F)

Question

1. If a taxpayer disposes of an interest in a passive activity, unused carryover losses are available to the purchaser of the interest.
2. A taxpayer may deduct suspended losses of a passive activity when the taxpayer completely terminates his or her ownership of the activity.
3. Once an activity has been classified as passive, it is considered passive with regard to that taxpayer until it is sold.
4. A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.
5. Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

Answer 1

1. FALSE
The taxpayer will recognize his unused carryover passive losses when his passive activity is disposed of in a taxable transaction.
2. TRUE
The law allows a taxpayer to recognized suspended passive losses when the ownership is completely terminated.
3. FALSE
The taxpayer can become a material participant in an activity at a later time. Status is determined each year.
4. TRUE
The law includes rental property in the definition of passive activity, unless the rental activity is considered a "real property trade or business."
5. TRUE
Taxpayers must examine all the relevant facts and circumstances to determine whether activities constitute an "appropriate economic unit."