SUSPENDED LOSS WHEN TAXPAYER DIES:EXAMPLE
01.Core Concepts
Eddie died last week. Throughout his life, he relied on the advice of his friend, Murphy, and purchased a series of passive investments that persistently generated losses and had little prospect of increasing in value. Eddie’s total basis in the passive investments was $150,000. As of the date of his death, Eddie had $150,000 in suspended passive losses, and the fair market value of his passive investments was $20,000. Since IRC Section 1014 will result in a new basis of $20,000 (a step-down) in the hands of the estate beneficiary who receives the investments, Eddie is permitted to deduct the entire $150,000 suspended loss on his final income tax return.