Question

Select all that apply. Which of the following statements are true when considering the deductibility of a suspended passive loss? (Check all that apply.)

a) The taxpayer will lose the tax benefit of the suspended loss if he sells or divests of the passive activity.
b) The suspended loss can reduce short and long-term capital gains, but NOT ordinary income.
c) The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity.
d) The suspended loss can only be deducted against passive income from the same passive activity that generated the loss.
e) The suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity.

Answer 1

When considering the deductibility of a suspended passive loss, the taxpayer will lose the tax benefit if they sell or divest of the passive activity. The suspended loss can be deducted when the taxpayer generates passive income from that activity or another passive activity. Additionally, the suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity.

Step-by-step explanation:

e) The suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity.

c) The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity.

a) The taxpayer will lose the tax benefit of the suspended loss if he sells or divests of the passive activity.

The deductibility of a suspended passive loss depends on several factors. If a taxpayer sells or divests of the passive activity, he will indeed lose the tax benefit of the suspended loss, as mentioned in statement a). However, statement c) is also true, as the suspended loss can be deducted when the taxpayer generates passive income from that activity or another passive activity. Additionally, statement e) is true, as the suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity.