@Rick19744 is right.......the excess suspended passive losses get deducted from the amount of step up in basis on the decedent's final return. It's complicated and here's an example.....
Decedent dies with $90k worth of suspended passive losses from an asset that gave rise to the losses and no other passive income. The asset has an adjusted basis of $400k and FMV of $475k on the date of death so the step up is $75k. On the final return the decedent gets a $15k deduction from the "excess" passive loss....which is $90k - the $75k step up. If there was no step up in basis and no passive income the whole $90k would be lost and none of that $90k gets added to the basis or anything. Passive losses are also lost IF the step up in basis exceeds the total losses.
