1041-US: Suspended losses are not completely allowed (FAQ)

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Question

The client disposed of a passive activity on the installment basis but the suspended losses are not being completely allowed. Why?

Answer

The rules for disposition of a passive activity on the installment basis are in the Form 8582 instructions. If the activity is disposed on the installment basis and the activity has an overall loss recognized in the current year, the carryover losses are allowed only to the ratio of gain recognized in the current year, divided by the unrecognized gain at the beginning of the year.

To indicate on the activity's main screen that the disposal was under the installment method, enter code 2 in the Disposition of activity field. In the asset module, enter the installment sale of the assets, or enter data on Screen Sale for sales of partnership or S Corporation stock.

If the activity has overall income recognized in the current year, all of the losses are released.

Related topic: 1041-US: Passive loss information FAQs

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