Instructions For Form 8582-Cr - Passive Activity Credit Limitations

(including individuals who did not own

activity. For purposes of this test,

whether activities make up an

any interest in the activity) for the

work done as an investor includes:

appropriate economic unit are:

year.

1. Studying and reviewing

1. Similarities and differences in

4. The activity is a significant

financial statements or reports on

types of trades or businesses,

participation activity for the tax year,

operations of the activity,

2. The extent of common control,

and you participated in all significant

2. Preparing or compiling

3. The extent of common

participation activities during the year

summaries or analyses of the

ownership,

for more than 500 hours.

finances or operations of the activity

4. Geographical location, and

for your own use, and

5. Interdependencies between or

A significant participation activity

3. Monitoring the finances or

among the activities.

is any trade or business activity in

operations of the activity in a

which you participated for more than

Example. You have a significant

nonmanagerial capacity.

100 hours during the year and in

ownership interest in a bakery and a

which you did not materially

Special rules for limited partners.

movie theater in Baltimore and in a

participate under any of the material

If you were a limited partner in an

bakery and a movie theater in

participation tests (other than this

activity, you generally did not

Philadelphia. Depending on all the

fourth test).

materially participate in the activity.

relevant facts and circumstances,

5. You materially participated in

You did materially participate in the

there may be more than one

the activity for any 5 (whether or not

activity, however, if you met material

reasonable method for grouping your

consecutive) of the 10 immediately

participation test 1, 5, or 6 (see Tests

activities. For instance, the following

preceding tax years.

for individuals, earlier) for the tax

groupings may or may not be

6. The activity is a personal

year.

permissible.

service activity in which you

•

A single activity.

However, for purposes of the

materially participated for any 3

•

A movie theater activity and a

material participation tests, you are

(whether or not consecutive)

bakery activity.

not treated as a limited partner if you

preceding tax years.

•

A Baltimore activity and a

also were a general partner in the

An activity is a personal service

Philadelphia activity.

partnership at all times during the

•

activity if it involves the performance

Four separate activities.

partnership’s tax year ending with or

of personal services in the fields of

within your tax year (or, if shorter,

Once you choose a grouping

health, law, engineering, architecture,

during the portion of the partnership’s

under these rules, you must continue

accounting, actuarial science,

tax year in which you directly or

using that grouping in later tax years

performing arts, consulting, or in any

indirectly owned your limited partner

unless a material change in the facts

other trade or business in which

interest).

and circumstances makes it clearly

capital is not a material income-

inappropriate.

A limited partner’s share of an

producing factor.

electing large partnership’s taxable

The IRS may regroup your

7. Based on all the facts and

income or loss from all trade or

activities if your grouping fails to

circumstances, you participated in the

business and rental activities is

reflect one or more appropriate

activity on a regular, continuous, and

treated as income or loss from the

economic units and one of the

substantial basis during the tax year.

conduct of a single passive trade or

primary purposes of your grouping is

You did not materially participate in

business activity.

to avoid the passive activity

the activity under this seventh test,

Special rules for certain retired or

limitations.

however, if you participated in the

disabled farmers and surviving

Limitation on grouping certain

activity for 100 hours or less during

spouses of farmers. Certain

activities. The following activities

the tax year.

retired or disabled farmers and

may not be grouped together.

Your participation in managing the

surviving spouses of farmers are

1. A rental activity with a trade or

activity does not count in determining

treated as materially participating in a

business activity unless the activities

whether you materially participated

farming activity if the real property

being grouped together make up an

under this test if:

used in the activity meets the estate

appropriate economic unit and:

a. Any person (except you)

tax rules for special valuation of farm

a. The rental activity is

received compensation for performing

property passed from a qualifying

insubstantial relative to the trade or

services in the management of the

decedent. See Temporary

business activity or vice versa, or

activity, or

Regulations section 1.469-5T(h)(2).

b. Each owner of the trade or

b. Any individual spent more

Estates and trusts. The PAC

business activity has the same

hours during the tax year performing

limitations apply to an estate or trust.

proportionate ownership interest in

services in the management of the

See Temporary Regulations sections

the rental activity. If so, the portion of

activity than you did (regardless of

1.469-1T(b)(2) and (3). The rules for

the rental activity involving the rental

whether the individual was

determining material participation for

of property used in the trade or

compensated for the management

this purpose have not yet been

business activity may be grouped

services).

issued.

with the trade or business activity.

2. An activity involving the rental

Grouping of Activities

Test for a spouse. Participation by

of real property with an activity

your spouse during the tax year in an

Generally, one or more trade or

involving the rental of personal

activity you own may be counted as

business activities or rental activities

property (except personal property

your participation in the activity, even

may be treated as a single activity if

provided in connection with the real

if your spouse did not own an interest

the activities make up an appropriate

property or vice versa).

in the activity and whether or not you

economic unit for the measurement of

3. Any activity with another activity

and your spouse file a joint return for

gain or loss under the passive activity

in a different type of business and in

the tax year.

rules.

which you hold an interest as a

Test for investors. Work done as

Whether activities make up an

limited partner or as a limited

an investor in an activity is not treated

appropriate economic unit depends

entrepreneur (as defined in section

as participation unless you were

on all the relevant facts and

464(e)(2)), if that other activity

directly involved in the day-to-day

circumstances. The factors given the

engages in holding, producing, or

management or operations of the

greatest weight in determining

distributing motion picture films or

-4-

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

Instructions For Form 8582-Cr - Passive Activity Credit Limitations - 2012 Page 4

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