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c. The gross rental income from the

Form 8810 for each passive rental

A closely held corporation also

property is less than 2% of the smaller of

activity. If the corporation has credits from

materially participates in an activity if the

the unadjusted basis or the FMV of the

passive rental activities, use Worksheet 5

corporation satisfies the qualifying

property.

on page 11 to figure the amount to enter

business requirements of section

in Part II of Form 8810.

465(c)(7)(C) (without regard to (iv) for the

Lodging provided for the employer’s

excluded business exception from the

convenience to an employee or the

at-risk limitations).

Trade or Business

employee’s spouse or dependents is

incidental to the activity or activities in

These requirements are met if:

Activities

which the employee performs services.

1. During the entire 12-month period

A trade or business activity is an activity

4. The corporation customarily makes

ending on the last day of the tax year,

(other than a rental activity or an activity

the rental property available during

substantially all the services of at least

treated as incidental to an activity of

defined business hours for nonexclusive

one full-time employee of the corporation

holding property for investment) that:

use by various customers.

were in the active management of the

5. The corporation provides property

1. Involves the conduct of a trade or

activity;

for use in a nonrental activity of a

business (within the meaning of section

2. During the same period,

partnership or joint venture in its capacity

162),

substantially all the services of at least

as an owner of an interest in such

2. Is conducted in anticipation of

three full-time nonowner employees were

partnership or joint venture.

starting a trade or business, or

directly related to the activity; and

3. Involves research or experimental

Example. If a partner contributes the

3. The deductions attributable to the

expenditures deductible under section

use of property to a partnership, none of

activity and allowed solely under sections

174 (or that would be if the corporation

the partner’s distributive share of

162 and 404 exceed 15% of the gross

chose to deduct rather than capitalize

partnership income is income from a

income from the activity for the tax year.

them).

rental activity unless the partnership is

Participation. For purposes of the

engaged in a rental activity.

material participation tests listed below,

Reporting Income, Deductions,

Also, a partner’s gross income

participation generally includes any work

attributable to a guaranteed payment

Losses, and Credits From the

the individual did (without regard to the

under section 707(c) is not income from a

Activities

capacity in which the individual did it) in

rental activity. The determination of

connection with an activity in which the

Trade or business activities with

whether the property used in the activity

corporation owned an interest at the time

material participation. If the corporation

is provided in the partner’s capacity as an

the individual did the work.

materially participated in a trade or

owner of an interest in the partnership is

business activity, the activity is not a

made on the basis of all the facts and

Work is not treated as participation,

passive activity. Report the income,

circumstances.

however, if the work is not work that an

deductions, losses, and credits from the

owner of that type of activity would

activity on the form or schedule normally

Reporting Income, Deductions,

customarily do, and if one of the

used.

individual’s main reasons for doing the

Losses, and Credits From the

work is to avoid the disallowance of

Trade or business activities without

Activities

losses or credits from the activity under

material participation. In general, use

If the corporation meets any of the five

the passive loss and credit rules.

Worksheets 1 and 2 on page 7 to

exceptions listed above, the corporation’s

determine the amount to enter in Part I of

Proof of participation. Participation

rental of the property is not a rental

Form 8810 for each trade or business

in an activity can be proved by any

activity. The corporation then must

activity in which the corporation did not

reasonable means. Contemporaneous

determine:

materially participate. If, however, the

daily time reports, logs, or similar

1. Whether the rental of the property

corporation held the activity through a

documents are not required if

is a trade or business activity (see Trade

PTP or the activity is a significant

participation can be established by other

or Business Activities below) and, if so,

participation activity, special rules apply.

reasonable means. Reasonable means

2. Whether the corporation materially

See Publicly Traded Partnerships

for this purpose may include, but are not

participated in the activity for the tax year.

(PTPs) on page 10. See Pub. 925 for how

limited to, the identification of services

to report income or losses from significant

performed over a period of time and the

To report income, deductions, losses, or

participation passive activities.

approximate number of hours spent

credits from a trade or business activity in

performing the services during that

which the corporation did not materially

In general, if the corporation has

period, based on appointment books,

participate, see Trade or business

credits from passive activities, use

calendars, or narrative summaries.

activities without material participation

Worksheet 5 on page 11 to figure the

below.

Tests for investors. Work done as an

amount to enter in Part II of Form 8810.

If the corporation meets any of the five

investor in an activity is not treated as

However, if the corporation held the

exceptions listed above and the activity is

participation unless the individual was

activity through a PTP, special rules

a trade or business activity in which the

directly involved in the day-to-day

apply. See Credits From PTPs on page

corporation materially participated, report

management or operations of the activity.

12 for how to report credits from these

any income, deduction, loss, or credit

For purposes of this test, work done as an

activities.

from the activity on the forms or

investor includes:

schedules normally used.

Material Participation

1. Studying and reviewing financial

If the rental activity did not meet any

statements or reports on operations of the

Personal service corporations and closely

of the five exceptions, it is generally a

activity.

held corporations materially or

passive activity. Special rules apply if the

2. Preparing or compiling summaries

significantly participate in an activity if one

or analyses of the finances or operations

corporation conducted the rental activity

or more individuals, each of whom would

of the activity for the individual’s own use.

through a publicly traded partnership

materially or significantly participate in the

3. Monitoring the finances or

(PTP) or if any of the rules described

activity if the corporation’s activity were

operations of the activity in a

under Recharacterization of Passive

the individual’s activity, directly or

nonmanagerial capacity.

Income on page 5 apply. See the PTP

indirectly own more than 50% (by value)

rules on page 10.

of the corporation’s outstanding stock. For

If the individual is married for the tax

If none of the special rules apply, use

this purpose, an individual’s participation

year, the individual’s participation in an

Worksheets 1 and 2 on page 7 to

in all activities other than activities of the

activity includes any participation in the

determine the amount to enter in Part I of

corporation is disregarded.

activity during the tax year by that

-3-

Instructions For Form 8810 Corporate Passive Activity Loss And Credit Limitations - Department Of The Treasury Page 3

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