Kate dies owning a passive activity with an adjusted basis of $100,000 . Its fair market value at that date is $130,000 . Suspended losses relating to the property were $45,000
a. The heir's adjusted basis is $130,000, and Kate's final deduction is $15,000.
b. The heir's adjusted basis is $130,000, and Kate's final deduction is $45,000.
c. The heir's adjusted basis is $100,000, and Kate's final deduction is $45,000.
d. The heir's adjusted basis is $175,000, and Kate has no final deduction.
e. None of the above.
a
RATIONALE: The heir receives a $30,000 step-up in basis ($130,000 FMV – $100,000 decedent's basis). A $15,000 passive activity loss deduction is allowed on the decedent's final return ($45,000 suspended loss – $30,000 step-up in basis).
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