Partner'S Instructions For Schedule K-1 (Form 1065-B) - Partner'S Share Of Income (Loss) From An Electing Large Partnership - 2006 Page 4
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11Individuals (other than limited
the activity. Examples of work done as an
in the activity was less than 10% (by
partners). If you are an individual (either
investor that would not count toward
value) of all interests in the activity.
a general partner or a limited partner who
material participation include:
Active participation is a less stringent
owned a general partnership interest at all
a. Studying and reviewing financial
requirement than material participation.
times during the tax year), you materially
statements or reports on operations of the
You may be treated as actively
participated in an activity only if one or
activity.
participating if you participated, for
more of the following apply.
b. Preparing or compiling summaries
example, in making management
1. You participated in the activity for
or analyses of the finances or operations
decisions or arranging for others to
more than 500 hours during the tax year.
of the activity for your own use.
provide services (such as repairs) in a
2. Your participation in the activity for
c. Monitoring the finances or
significant and bona fide sense.
the tax year constituted substantially all
operations of the activity in a
Management decisions that can count as
the participation in the activity of all
nonmanagerial capacity.
active participation include approving new
individuals (including individuals who are
tenants, deciding rental terms, approving
Effect of determination. Income
not owners of interests in the activity for
capital or repair expenditures, and other
(loss), deductions, and credits from an
the tax year).
similar decisions.
activity are nonpassive if you determine
3. You participated in the activity for
that:
more than 100 hours during the tax year,
An estate is a qualifying estate if the
•
You materially participated in a trade or
and your participation in the activity for
decedent would have satisfied the active
business activity of the partnership or
the tax year was not less than the
participation requirement for the activity
•
You were a real estate professional in a
participation in the activity of any other
for the tax year the decedent died. A
rental real estate activity of the
individual (including individuals who were
qualifying estate is treated as actively
partnership.
not owners of interests in the activity) for
participating for tax years ending less
the tax year.
than 2 years after the date of the
If you determine that you did not
4. The activity was a significant
decedent’s death.
materially participate in a trade or
participation activity for the tax year, and
business activity of the partnership or if
The maximum special allowance that
you participated in all significant
you have income (loss), deductions, or
single individuals and married individuals
participation activities (including activities
credits from a rental activity of the
filing a joint return can qualify for is
outside the partnership) during the year
partnership (other than a rental real
$25,000. The maximum is $12,500 for
for more than 500 hours. A significant
estate activity in which you materially
married individuals who file separate
participation activity is any trade or
participated as a real estate professional),
returns and who live apart all times during
business activity in which you participated
the amounts from that activity are
the year. The maximum special allowance
for more than 100 hours during the tax
passive. Report passive income (losses),
for which an estate can qualify is $25,000
year and in which you did not materially
deductions, and credits as follows.
reduced by the special allowance for
participate under any of the material
1. If you have an overall gain (the
which the surviving spouse qualifies.
participation tests (other than this test 4).
excess of income over deductions and
5. You materially participated in the
If your modified adjusted gross income
losses, including any prior year unallowed
activity for any 5 tax years (whether or not
(defined below) is $100,000 or less
loss) from a passive activity, report the
consecutive) during the 10 tax years that
($50,000 or less if married filing
income, deductions, and losses from the
immediately precede the tax year.
separately), your loss is deductible up to
activity as indicated in the instructions for
6. The activity was a personal service
the amount of the maximum special
the boxes in which those items were
activity and you materially participated in
allowance referred to in the preceding
reported.
the activity for any 3 tax years (whether or
paragraph. If your modified adjusted
2. If you have an overall loss (the
not consecutive) preceding the tax year.
gross income is more than $100,000
excess of deductions and losses,
A personal service activity involves the
(more than $50,000 if married filing
including any prior year unallowed loss,
performance of personal services in the
separately), the special allowance is
over income) or credits from a passive
fields of health, law, engineering,
limited to 50% of the difference between
activity, report the income, deductions,
architecture, accounting, actuarial
$150,000 ($75,000 if married filing
losses, and credits from all passive
science, performing arts, consulting, or
separately) and your modified adjusted
activities using the Instructions for Form
any other trade or business in which
gross income. When modified adjusted
8582 or Form 8582-CR (or Form 8810), to
capital is not a material income-producing
gross income is $150,000 or more
see if your deductions, losses, and credits
factor.
($75,000 or more if married filing
are limited under the passive activity
7. Based on all the facts and
separately), there is no special allowance.
rules.
circumstances, you participated in the
Modified adjusted gross income is your
activity on a regular, continuous, and
Special allowance for rental real estate
substantial basis during the tax year.
adjusted gross income figured without
activities. If you actively participated in a
taking into account the following.
rental real estate activity, you may be
•
Work counted toward material
Any passive activity loss.
able to deduct up to $25,000 of the loss
•
participation. Generally, any work that
Any rental real estate loss allowed
from the activity from nonpassive income.
you or your spouse do in connection with
under section 469(c)(7) to real estate
This “special allowance” is an exception
an activity held through a partnership
professionals (as defined previously).
to the general rule disallowing losses in
•
(where you own your partnership interest
Any taxable social security or
excess of income from passive activities.
at the time the work is done) is counted
equivalent railroad retirement benefits.
The special allowance is not available if
•
toward material participation. However,
Any deductible contributions to an IRA
you were married, filed a separate return
work in connection with the activity is not
or certain other qualified retirement plans
for the year, and did not live apart from
counted toward material participation if
under section 219.
your spouse at all times during the year.
•
either of the following applies.
The student loan interest deduction.
•
Only individuals and qualifying estates
1. The work is not the sort of work that
The tuition and fees deduction.
•
can actively participate in a rental real
owners of the activity would usually do
The deduction for one-half of
estate activity. Estates (other than
and one of the principal purposes of the
self-employment taxes.
•
qualifying estates), trusts, and
work that you or your spouse does is to
The exclusion from income of interest
corporations cannot actively participate.
avoid the passive loss or credit
from Series EE and I U.S. Savings Bonds
limitations.
You are not considered to actively
used to pay higher education expenses.
•
2. You do the work in your capacity as
participate in a rental real estate activity if
The exclusion of amounts received
an investor and you are not directly
at any time during the tax year your
under an employer’s adoption assistance
involved in the day-to-day operations of
interest (including your spouse’s interest)
program.
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