Eric makes an installment sale of a passive activity having suspended losses of $40,000.He collects 25% of the sales price in the current year and will collect 25% in each of the next three years.Eric can deduct $10,000 of the passive activity loss this year.

Question

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According to the rules of the passive activity loss rules, when an installment sale is made, any suspended losses are deductible in proportion to the percentage of the installment payment received each year. Therefore, Eric can deduct $10,000 (25% of $40,000) of the suspended loss in the current year when he receives 25% of the sales price. He can also deduct another $10,000 in each of the next three years when he receives 25% of the sales price in each of those years.

Eric Makes an Installment Sale of a Passive Activity Having