Generally, when taxpayer disposes of their entire interest in a passive activity where all gain or loss is recognized, any prior-year unallowed passive activity losses are:

a. Included with current-year passive activity gain or loss and allowed in full.

b. Deducted against ordinary income up to $3,000 and carried forward until depleted.

c. Permanently disallowed.

d. Carried forward to offset any future passive activity gains.