Return to the facts of problem 36. At the end of 2022, 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 2020, $12,000 in 2021, and income of $4,000 in 2022. In 2021, Mason purchases a second passive activity that has passive income of $6,000 in 2021 and $10,000 in 2022. Discuss the effect of Mason's passive activity investments on his taxable income in 2020, 2021, and 2022. Assume that neither passive activity involves rental real estate.