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2. Rental real estate activities in which

income (loss), deductions, and credits

activity on a regular, continuous, and

you materially participated if you were a

from each activity.

substantial basis during the tax year.

“real estate professional” for the tax year.

Material participation. You must

Limited partners. If you are a limited

You were a real estate professional only

determine if you materially participated

partner, you do not materially participate

if you met both of the following conditions:

(a) in each trade or business activity held

in an activity unless you meet one of the

a. More than half of the personal

through the partnership and (b) if you

tests in paragraphs 1, 5, or 6 above.

services you performed in trades or

were a real estate professional (defined

businesses were performed in real

above), in each rental real estate activity

Work counted toward material

property trades or businesses in which

held through the partnership. All

participation. Generally, any work that

you materially participated and

determinations of material

you or your spouse does in connection

participation are made based on your

with an activity held through a partnership

b. You performed more than 750

participation during the partnership’s

(where you own your partnership interest

hours of services in real property trades

tax year.

at the time the work is done) is counted

or businesses in which you materially

toward material participation. However,

participated.

Material participation standards for

work in connection with the activity is not

partners who are individuals are listed

Note: For a closely held C corporation

counted toward material participation if

below. Special rules apply to certain

(defined in section 465(a)(1)(B)), the

either of the following applies.

retired or disabled farmers and to the

above conditions are treated as met if

surviving spouses of farmers. See the

1. The work is not the type of work

more than 50% of the corporation’s gross

Instructions for Form 8582 for details.

that owners of the activity would usually

receipts were from real property trades or

do and one of the principal purposes of

Corporations should refer to the

businesses in which the corporation

the work that you or your spouse does is

Instructions for Form 8810 for the material

materially participated.

to avoid the passive loss or credit

participation standards that apply to them.

For purposes of this rule, each interest

limitations.

Individuals (other than limited

in rental real estate is a separate activity,

2. You do the work in your capacity as

partners). If you are an individual (either

unless you elect to treat all interests in

an investor and you are not directly

a general partner or a limited partner who

rental real estate as one activity. For

involved in the day-to-day operations of

owned a general partnership interest at all

details on making this election, see the

the activity. Examples of work done as an

times during the tax year), you materially

Instructions for Schedule E (Form 1040).

investor that would not count toward

participated in an activity only if one or

material participation include:

If you are married filing jointly, either

more of the following apply:

you or your spouse must separately meet

a. Studying and reviewing financial

1. You participated in the activity for

both of the above conditions, without

statements or reports on operations of the

more than 500 hours during the tax year.

taking into account services performed by

activity.

2. Your participation in the activity for

the other spouse.

b. Preparing or compiling summaries

the tax year constituted substantially all

or analyses of the finances or operations

A real property trade or business is

the participation in the activity of all

of the activity for your own use.

any real property development,

individuals (including individuals who are

c. Monitoring the finances or

redevelopment, construction,

not owners of interests in the activity).

operations of the activity in a

reconstruction, acquisition, conversion,

3. You participated in the activity for

nonmanagerial capacity.

rental, operation, management, leasing,

more than 100 hours during the tax year,

or brokerage trade or business. Services

and your participation in the activity for

Effect of determination. If you

you performed as an employee are not

the tax year was not less than the

determine that you materially participated

treated as performed in a real property

participation in the activity of any other

in (a) a trade or business activity of the

trade or business unless you owned more

individual (including individuals who were

partnership or (b) if you were a real estate

than 5% of the stock (or more than 5% of

not owners of interests in the activity) for

professional (defined above) in a rental

the capital or profits interest) in the

the tax year.

real estate activity of the partnership,

employer.

4. The activity was a significant

report the income (loss), deductions, and

3. Working interests in oil or gas wells

participation activity for the tax year, and

credits from that activity as indicated in

if you were a general partner.

you participated in all significant

either column (c) of Schedule K-1 or the

4. The rental of a dwelling unit any

participation activities (including activities

instructions for each line.

partner used for personal purposes during

outside the partnership) during the year

the year for more than the greater of 14

If you determine that you did not

for more than 500 hours. A significant

days or 10% of the number of days that

materially participate in a trade or

participation activity is any trade or

the residence was rented at fair rental

business activity of the partnership or if

business activity in which you participated

you have income (loss), deductions, or

value.

for more than 100 hours during the year

credits from a rental activity of the

5. Activities of trading personal

and in which you did not materially

partnership (other than a rental real

property for the account of owners of

participate under any of the material

estate activity in which you materially

interests in the activities.

participation tests (other than this test 4).

participated as a real estate professional),

5. You materially participated in the

If you are an individual, an estate, or a

the amounts from that activity are

activity for any 5 tax years (whether or not

trust, and you have a passive activity loss

passive. Report passive income (losses),

consecutive) during the 10 tax years that

or credit, use Form 8582, Passive Activity

deductions, and credits as follows:

immediately precede the tax year.

Loss Limitations, to figure your allowable

6. The activity was a personal service

1. If you have an overall gain (the

passive losses and Form 8582-CR,

activity and you materially participated in

excess of income over deductions and

Passive Activity Credit Limitations, to

the activity for any 3 tax years (whether or

losses, including any prior year unallowed

figure your allowable passive credits. For

not consecutive) preceding the tax year.

loss) from a passive activity, report the

a corporation, use Form 8810, Corporate

A personal service activity involves the

income, deductions, and losses from the

Passive Activity Loss and Credit

performance of personal services in the

activity as indicated on Schedule K-1 or in

Limitations. See the instructions for these

fields of health, law, engineering,

these instructions.

forms for more information.

architecture, accounting, actuarial

2. If you have an overall loss (the

If the partnership had more than one

science, performing arts, consulting, or

excess of deductions and losses,

activity, it will attach a statement to your

any other trade or business in which

including any prior year unallowed loss,

Schedule K-1 that identifies each activity

capital is not a material income-producing

over income) or credits from a passive

(trade or business activity, rental real

factor.

activity, report the income, deductions,

estate activity, rental activity other than

7. Based on all the facts and

losses, and credits from all passive

rental real estate, etc.) and specifies the

circumstances, you participated in the

activities using the Instructions for Form

-3-

Partner’s Instructions for Schedule K-1 (Form 1065)

Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Credits, Deductions, Etc. (For Partner'S Use Only) - 2001 Page 3

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