Part 1 Rental, Royalty, Passive and Pass-Through Income question: entire interest in a rental duplex to an unrelated buyer

Part 1Rental, Royalty, Passive and Pass-Through Income

Joan sold her entire interest in a rental duplex to an unrelated buyer in 2025. She has $14,000 of suspended passive losses from it. What happens to them?

A They are deductible only up to $3,000 a year
B They are deductible in full in 2025
C They are lost when the property is sold
D They stay suspended until she has other passive income

Show the answer and explanation

Answer: B. They are deductible in full in 2025

When a taxpayer disposes of her entire interest in a passive activity in a fully taxable transaction with an unrelated party, suspended losses from that activity are released and treated as nonpassive. Joan deducts the $14,000 in 2025. The $3,000 limit applies to net capital losses, not passive losses. Source: IRC 469(g)(1)(A); Pub. 925 (2025), Dispositions. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Leaving suspended losses suspended after a complete taxable disposition.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.