Question: Leon sells his interest in a passive activity for $100,000. Determine the tax effect of the sale based on each of the following independent facts:
1) Adjusted basis if this investment is $35,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000.
2) Adjusted basis in this investment is $75,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000.
3) Adjusted basis in this investment is $75,000. Losses from prior years that were not deductible due to the passive loss restrictions total $40,000. In addition, suspended credits total $10,000.