Final answer:
Faye's suspended passive activity losses of $52,000 can be fully deducted on her final income tax return. There would likely be no estate tax liability unless her entire estate exceeds the exemption amount, which is over $5 million since 2013.
Step-by-step explanation:
The topic in question concerns the final income tax treatment of a decedent's interest in a passive activity property in the context of estate taxation. Faye, the decedent, has an adjusted basis in the property of $150,000, suspended losses amounting to $52,000, and a fair market value of $180,000 at the time of death. In her final income tax return, the suspended losses can be fully deducted against any income on the return, due to a special allowance in the tax code that permits suspended passive activity losses to be recognized in the year an individual passes away.
Since the estate tax only applies to estates that exceed the exemption amount, which has been above $5 million since 2013, Faye's estate would likely not be liable for estate taxes unless it significantly exceeds this threshold. As a result, the focus for her final return is the treatment of her passive activity losses and not estate tax liability.