Final answer:
The $80,000 suspended passive activity loss from the asset that Kim owned at the time of death is fully deductible on her final income tax return due to the deemed disposition upon death.
Step-by-step explanation:
The student's question pertains to the deductibility of suspended losses from a passive activity on a decedent's final income tax return. Generally, suspended losses from passive activities are deductible in full in the year that the activity is disposed of in a fully taxable transaction to an unrelated party. In the case of a taxpayer's death, the disposal is considered to have occurred and thus the $80,000 in suspended losses may become fully deductible on Kim's final return.Passive activities are typically businesses or trades in which the taxpayer does not materially participate, and these activities generate passive losses or income. Upon the taxpayer's death, any passive activity losses that were not previously deductible because they exceeded income from passive activities become deductible against ordinary income. This is because the activity is considered disposed of at fair market value due to the step-up in basis rules at death.In conclusion, the full $80,000 passive loss Kim held in the passive activity becomes deductible on her final tax return, thus allowing the estate or heirs to benefit from lower taxable income.