Return to the facts of problem 36. At the end of 2021, Mason sells the passive activity that generated the losses for $16,000. What is the effect on his taxable income if his basis in the activity sold is

a. $4,000?

b. $21,000?

Data from Problem 36

Mason owns a passive activity that generates a loss of $14,000 in 2019, $12,000 in 2020, and income of $4,000 in 2021. In 2020, Mason purchases a second passive activity that has passive income of $6,000 in 2020 and $10,000 in 2021. Discuss the effect of Mason’s passive activity investments on his taxable income in 2019, 2020, and 2021. Assume that neither passive activity involves rental real estate.