Instructions For Form 8582-Cr - Passive Activity Credit Limitations

end of the year, are filing a separate

($50,000 or less if married filing

Reporting Credits

return for the year, and lived with your

separately), figure your credits based

From the Activities

spouse at any time during the year.

on the amount of the maximum

Trade or business activities with

special allowance referred to in the

Only an individual, a qualifying

material participation. If you

preceding paragraph.

estate, or a qualified revocable trust

materially participated in a trade or

that made an election to treat the

business activity, the activity is not a

If your modified adjusted gross

trust as part of the decedent’s estate

passive activity. Report the credits

income is more than $100,000

may actively participate in a rental

from the activity on the forms you

($50,000 if married filing separately)

real estate activity. Unless future

normally use.

but less than $150,000 ($75,000 if

regulations provide an exception,

married filing separately), your

Trade or business activities

limited partners are not treated as

special allowance is limited to 50% of

without material participation. If

actively participating in a

the difference between $150,000

you did not materially participate in a

partnership’s rental real estate

trade or business activity, the activity

($75,000 if married filing separately)

activity.

is a passive activity. Generally, you

and your modified adjusted gross

A qualifying estate is the estate of

must use Worksheet 4, later, to figure

income.

a decedent for tax years ending less

the amount to enter on Form

than 2 years after the date of the

Generally, if your modified

8582-CR for each trade or business

decedent’s death if the decedent

activity in which you did not materially

adjusted gross income is $150,000 or

would have satisfied the active

participate. However, if you held the

more ($75,000 or more if married

participation requirements for the

activity through a PTP, special rules

filing separately), there is no special

rental real estate activity for the tax

apply. See Publicly Traded

allowance.

year the decedent died.

Partnerships (PTPs), later.

A qualified revocable trust may

However, for low-income housing

Material Participation

elect to be treated as part of a

credits for property placed in service

decedent’s estate for purposes of the

before 1990 and for rehabilitation

For the material participation tests

special allowance for active

credits, the limits on modified

that follow, participation generally

participation in rental real estate

adjusted gross income are increased.

includes any work done in connection

activities. The election must be made

If your modified adjusted gross

with an activity if you owned an

by both the executor (if any) of the

income is more than $200,000

interest in the activity at the time you

decedent’s estate and the trustee of

($100,000 if married filing separately)

did the work. The capacity in which

the revocable trust. For details, see

you did the work does not matter.

but less than $250,000 ($125,000 if

Regulations section 1.645-1.

However, work is not participation if:

married filing separately), your

•

You are not considered to actively

It is not work that an owner would

special allowance is limited to 50% of

participate in a rental real estate

customarily do in the same type of

the difference between $250,000

activity if at any time during the tax

activity, and

($125,000 if married filing separately)

•

year your interest (including your

One of your main reasons for doing

and your modified adjusted gross

spouse’s interest) in the activity was

the work was to avoid the

income.

less than 10% (by value) of all

disallowance of losses or credits from

interests in the activity.

the activity under the passive activity

If your modified adjusted gross

rules.

income is $250,000 or more

Active participation is a less

stringent requirement than material

($125,000 or more if married filing

Proof of participation. You may

participation (see Material

separately), there is no special

prove your participation in an activity

Participation, later). You may be

allowance.

by any reasonable means. You do

treated as actively participating if, for

not have to maintain

No modified adjusted gross

example, you participated in making

contemporaneous daily time reports,

income limitation applies when

management decisions or arranging

logs, or similar documents if you can

for others to provide services (such

figuring the special allowance for

establish your participation by other

as repairs) in a significant and bona

low-income housing credits for

reasonable means. For this purpose,

fide sense. Management decisions

property placed in service after 1989

reasonable means include, but are

that may count as active participation

(other than from a pass-through entity

not limited to, identifying services

include:

performed over a period of time and

in which you acquired your interest

•

Approving new tenants,

the approximate number of hours

before 1990).

•

Deciding on rental terms,

spent performing the services during

•

Approving capital or repair

that period, based on appointment

Trade or Business

expenditures, and

books, calendars, or narrative

•

Activities

Other similar decisions.

summaries.

The maximum special allowance is:

Tests for individuals. You

A trade or business activity is an

•

$25,000 for single individuals and

materially participated for the tax year

activity (other than a rental activity or

married individuals filing a joint return

in an activity if you satisfy at least one

an activity treated as incidental to an

for the tax year.

of the following tests.

activity of holding property for

•

$12,500 for married individuals

1. You participated in the activity

investment) that:

who file separate returns for the tax

for more than 500 hours.

1. Involves the conduct of a trade

year and who lived apart from their

2. Your participation in the activity

or business (within the meaning of

spouses at all times during the tax

for the tax year was substantially all

section 162),

year.

of the participation in the activity of all

•

2. Is conducted in anticipation of

$25,000 for a qualifying estate

individuals (including individuals who

starting a trade or business, or

reduced by the special allowance for

did not own any interest in the

which the surviving spouse qualified.

3. Involves research or

activity) for the year.

experimental expenditures deductible

Modified adjusted gross income

3. You participated in the activity

under section 174 (or that would be if

limitation. If your modified adjusted

for more than 100 hours during the

you chose to deduct rather than

gross income (defined in the

tax year, and you participated at least

capitalize them).

instructions, later) is $100,000 or less

as much as any other individual

-3-

Instructions for Form 8582-CR (Rev. 01-2012)

Instructions For Form 8582-Cr - Passive Activity Credit Limitations - 2012 Page 3

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