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trust as part of the decedent’s estate

If your modified adjusted gross

Trade or business activities

may actively participate in a rental

income is more than $100,000

without material participation. If

real estate activity. Unless future

($50,000 if married filing separately)

you did not materially participate in a

regulations provide an exception,

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

trade or business activity, the activity

limited partners are not treated as

married filing separately), your

is a passive activity. Generally, you

actively participating in a

special allowance is limited to 50% of

must use Worksheet 4 on page 9 to

partnership’s rental real estate

the difference between $150,000

figure the amount to enter on Form

activity.

($75,000 if married filing separately)

8582-CR for each trade or business

and your modified adjusted gross

activity in which you did not materially

A qualifying estate is the estate of

income.

participate. However, if you held the

a decedent for tax years ending less

activity through a PTP, special rules

Generally, if your modified

than 2 years after the date of the

apply. See Publicly Traded

adjusted gross income is $150,000 or

decedent’s death if the decedent

Partnerships (PTPs) on page 14.

more ($75,000 or more if married

would have satisfied the active

filing separately), there is no special

participation requirements for the

Material Participation

allowance.

rental real estate activity for the tax

For the material participation tests

year the decedent died.

However, for low-income housing

that follow, participation generally

credits for property placed in service

A qualified revocable trust may

includes any work done in connection

before 1990 and for rehabilitation

elect to be treated as part of a

with an activity if you owned an

credits, the limits on modified

decedent’s estate for purposes of the

interest in the activity at the time you

adjusted gross income are increased.

special allowance for active

did the work. The capacity in which

If your modified adjusted gross

participation in rental real estate

you did the work does not matter.

income is more than $200,000

activities. The election must be made

However, work is not participation if:

($100,000 if married filing separately)

by both the executor (if any) of the

•

It is not work that an owner would

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

decedent’s estate and the trustee of

customarily do in the same type of

married filing separately), your

the revocable trust. For details, see

activity, and

special allowance is limited to 50% of

Regulations section 1.645-1.

•

One of your main reasons for doing

the difference between $250,000

You are not considered to actively

the work was to avoid the

($125,000 if married filing separately)

participate in a rental real estate

disallowance of losses or credits from

and your modified adjusted gross

activity if at any time during the tax

the activity under the passive activity

income.

year your interest (including your

rules.

If your modified adjusted gross

spouse’s interest) in the activity was

Proof of participation. You may

income is $250,000 or more

less than 10% (by value) of all

prove your participation in an activity

($125,000 or more if married filing

interests in the activity.

by any reasonable means. You do

separately), there is no special

Active participation is a less

not have to maintain

allowance.

contemporaneous daily time reports,

stringent requirement than material

No modified adjusted gross

logs, or similar documents if you can

participation (see Material

income limitation applies when

establish your participation by other

Participation beginning on this page).

figuring the special allowance for

You may be treated as actively

reasonable means. For this purpose,

low-income housing credits for

participating if, for example, you

reasonable means include, but are

property placed in service after 1989

not limited to, identifying services

participated in making management

(other than from a pass-through entity

performed over a period of time and

decisions or arranging for others to

in which you acquired your interest

the approximate number of hours

provide services (such as repairs) in

before 1990).

a significant and bona fide sense.

spent performing the services during

Management decisions that may

that period, based on appointment

Trade or Business

books, calendars, or narrative

count as active participation include:

•

Activities

summaries.

Approving new tenants,

•

Deciding on rental terms,

Tests for individuals. You

A trade or business activity is an

•

Approving capital or repair

materially participated for the tax year

activity (other than a rental activity or

expenditures, and

in an activity if you satisfy at least one

an activity treated as incidental to an

•

Other similar decisions.

of the following tests.

activity of holding property for

The maximum special allowance

investment) that:

1. You participated in the activity

is:

for more than 500 hours.

1. Involves the conduct of a trade

•

$25,000 for single individuals and

2. Your participation in the activity

or business (within the meaning of

married individuals filing a joint return

for the tax year was substantially all

section 162),

for the tax year.

of the participation in the activity of all

2. Is conducted in anticipation of

•

$12,500 for married individuals

individuals (including individuals who

starting a trade or business, or

who file separate returns for the tax

did not own any interest in the

3. Involves research or

year and who lived apart from their

activity) for the year.

experimental expenditures deductible

spouses at all times during the tax

3. You participated in the activity

under section 174 (or that would be if

year.

for more than 100 hours during the

you chose to deduct rather than

•

$25,000 for a qualifying estate

tax year, and you participated at least

capitalize them).

reduced by the special allowance for

as much as any other individual

which the surviving spouse qualified.

(including individuals who did not own

Reporting Credits

any interest in the activity) for the

Modified adjusted gross income

From the Activities

year.

limitation. If your modified adjusted

4. The activity is a significant

gross income (defined in the

Trade or business activities with

participation activity for the tax year,

material participation. If you

instructions for line 10 on page 10) is

and you participated in all significant

$100,000 or less ($50,000 or less if

materially participated in a trade or

participation activities during the year

married filing separately), figure your

business activity, the activity is not a

for more than 500 hours.

credits based on the amount of the

passive activity. Report the credits

maximum special allowance referred

from the activity on the forms you

A significant participation activity

to in the preceding paragraph.

normally use.

is any trade or business activity in

-3-

Instructions for Form 8582-CR (2010)

Instructions For Form 8582-Cr - Passive Activity Credit Limitations - Internal Revenue Service - Page 3

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