Non-Real Estate Activities, Disposition of Passive Activities (LO. 7) Mason owns a passive activity that generates a loss of $14,000 in 2018, $12,000 in 2018, and income of $4,000 in 2020. In 2019, Mason purchases a second passive activity that has passive income of $5,000 in 2019 and $10,000 in 2020. Assume that neither passive activity involves rental real estate. At the end of 2020, 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: Mason has a long-term capital gain of on the sale of the passive activity. The total effect of the sale is to increase Mason's income by $ b. $21,000: Mason has a long-term capital loss of 3,000 of the loss is deductible. This would result in as from the sale of the passive activity. If Mason has no other capital gains in 2020, then only s reduction in his taxable income