Mary sells her passive activity in 2020 for $450,000. She bought the activity in 2018 for $600,000. She also has a suspended loss of $20.000 from 2018 a)How to account for this transaction? b) Same as above except sale price is $750,000. How to account for this sale?

Mary sells her passive activity in 2020 for $450,000. She bought the activity in 2018 for $600,000. She also has a suspended loss of $20.000 from 2018 a)How to account for this transaction? b) Same as above except sale price is $750,000. How to account for this sale?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter11: Invest Or Losses

Section: Chapter Questions

Problem 62P

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Mary sells her passive activity in 2020 for $450,000. She bought the activity in 2018 for $600,000. She also has a suspended loss of $20.000 from 2018

a)How to account for this transaction?

b) Same as above except sale price is $750,000. How to account for this sale?

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