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Worksheet 4

Line 1, column (b). Divide each of the

ratios in column (b). Enter the portion of

individual Form 1120 deductions shown in

the unallowed loss in Worksheet 3,

Use Worksheet 4 to allocate the

column (a) by the total of all of the Form

column (c) that is attributable to a

unallowed deductions and losses for each

1120 deductions in column (a) and enter

Schedule D or Form 4797 loss in column

activity among Form 1120 deductions and

the ratio for each of the deductions in

any losses to be reported on Form 4797

column (b). The total of the ratios must

Column (d). Subtract column (c) from

and Schedule D.

equal 1.00.

column (a) and enter the results in this

If the unallowed loss is reported on

Column (c). Allocate the portion of the

column. Enter the deductions allowed for

one form or schedule, skip the following

loss in Worksheet 3, column (c), among

Form 1120 on the proper lines of Form

example and complete Worksheet 4.

the Form 1120 deductions by multiplying

1120 and enter the allowed Schedule D

the unallowed loss attributable to the total

and Form 4797 losses on that form or

If the unallowed loss is from losses

Form 1120 deductions by each of the

schedule.

reported on more than one form or

schedule, allocate the unallowed loss

from column (c) of Worksheet 3 among

the net losses as follows:

Example. The corporation has one

passive activity. The activity has an

unallowed loss of $18,000 in column (c)

of Worksheet 3 and the following net

losses and net gain:

Worksheet 4—Allowed Deductions and Losses

Form 1120

Gross receipts

$100,000

(d) Allowed

Name of activity:

(b) Ratio

(a) Deductions

Deductions

120,000

deductions and

and losses

losses

Net loss

($20,000)

1. Form 1120 deductions:

Schedule D

Form 4797

Cost of goods sold

Gain

$1,000

Gain

$5,000

b. Compensation of officers

Loss

(2,000)

Loss

(2,000)

Net loss

($1,000)

Net gain

$3,000

Salaries and wages

d. Repairs and maintenance

Add the net losses of $20,000 and

Bad debts

$1,000, for a total of $21,000. Divide the

net loss reported on each form by the

f. Rents

total of the net losses, and multiply the

g. Taxes and licenses

result by the unallowed loss of $18,000,

h. Interest

as shown below:

i. Depreciation

$20,000

Form 1120:

$18,000 = $17,143

$21,000

j. Depletion

k. Advertising

$1,000

Schedule D:

$18,000 = $857

$21,000

l. Other deductions

1.00

Total Form 1120 deductions

On Form 4797, report the $2,000 loss

and the $5,000 gain. On Worksheet 4,

2. Schedule D losses

enter the $17,143 of unallowed

3. Form 4797 losses

deductions allocated to Form 1120 in

Name of activity:

(d) Allowed

(b) Ratio

(a) Deductions

column (c) on the line for total Form 1120

deductions and

and losses

losses

deductions. Enter the $857 of unallowed

Schedule D losses in column (c) of line 2.

1. Form 1120 deductions:

Worksheet 4 is used to allocate the

Cost of goods sold

$17,143 to the Form 1120 deductions and

Compensation of officers

show the allowed and unallowed

Schedule D loss.

Salaries and wages

Repairs and maintenance

Line 1, column (a). Enter the current

Bad debts

year deductions for each Form 1120

expense (lines 6a through 6l of

Rents

Worksheet 1) plus any prior year

Taxes and licenses

unallowed Form 1120 deduction for that

Interest

activity. For example, if line 6i of

Worksheet 1 shows current year

Depreciation

depreciation for the activity of $2,200, and

Depletion

the activity had prior year unallowed

Advertising

depreciation of $1,200, enter $3,400 on

Other deductions

line 1i, column (a), of Worksheet 4.

1.00

Total Form 1120 deductions

Line 2, column (a). Enter any Schedule

2. Schedule D losses

D losses from line 8 of Worksheet 1 plus

3. Form 4797 losses

any prior year unallowed Schedule D

losses for that activity.

Line 3, column (a). Enter any Form

4797 losses from line 9 of Worksheet 1

plus any prior year unallowed Form 4797

losses for that activity.

-9-

Instructions For Form 8810 Corporate Passive Activity Loss And Credit Limitations - Department Of The Treasury Page 9

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