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At-Risk Limitations, for details on the at-risk

passive activity deductions. See Temporary

use of the property is incidental to their

rules. Also, capital losses that are allowable

Regulations section 1.469-1T(e)(4)(ii).

receipt of the services.

under the PAL rules may be limited under

3. Rental of the property is incidental to

4. An activity of trading personal

the capital loss limitations of section

a nonrental activity.

property for the account of owners of

1211(a). Percentage depletion deductions

interests in the activity. For purposes of this

The rental of property is incidental to an

that are allowable under the PAL rules may

rule, personal property means property that

activity of holding property for investment if

be limited under section 613A(d).

is actively traded, such as stocks, bonds,

the main purpose for holding the property is

and other securities. See Temporary

to realize a gain from its appreciation and

Special Rules for

Regulations section 1.469-1T(e)(6) for more

the gross rental income is less than 2% of

details.

the smaller of the unadjusted basis or the

Consolidated Group

FMV of the property.

The passive activity loss and passive activity

Unadjusted basis is the cost of the

Rental Activities

property without regard to depreciation

credit of an affiliated group of corporations

A rental activity is a passive activity even if

deductions or any other basis adjustment

filing a consolidated return for the tax year

(a consolidated group) are determined by

the corporation materially participated in the

described in section 1016.

taking into account the following items of

activity unless it meets the requirements

The rental of property is incidental to a

described in item 2 in Activities That Are Not

each member of the group.

trade or business activity if:

•

Passive Activities above. In addition, if the

Passive activity gross income and

a. The corporation owned an interest in

corporation meets any of the five exceptions

deductions.

the trade or business activity during the tax

•

listed below, the rental of the property is not

Gain or loss on dispositions.

year,

•

treated as a rental activity. See Reporting

Net active income (for a consolidated

b. The rental property was mainly used

Income, Deductions, Losses, and Credits

group treated as a closely held corporation).

in the trade or business activity during the

From Rental Activities, below, if the

•

tax year or during at least 2 of the 5

Credits from passive activities.

corporation meets any of the exceptions.

preceding tax years, and

c. The gross rental income from the

Activities That Are Not

An activity is a rental activity if tangible

property is less than 2% of the smaller of the

property (real or personal) is used by

Passive Activities

unadjusted basis or the FMV of the property.

customers or held for use by customers and

Lodging provided for the employer’s

the gross income (or expected gross

The following are not classified as passive

convenience to an employee or the

income) from the activity represents

activities. Generally, income, losses, and

employee’s spouse or dependents is

amounts paid (or to be paid) mainly for the

credits from these activities are not entered

incidental to the activity or activities in which

use of the property. It does not matter

on Form 8810. However, losses and credits

the employee performs services.

whether the use of the property is under a

from these activities may be subject to

lease, a service contract, or some other

4. The corporation customarily makes

limitations other than the passive activity

arrangement.

the rental property available during defined

loss and credit rules.

business hours for nonexclusive use by

1. Trade or business activities in which

Exceptions

various customers.

the corporation materially participated for

5. The corporation provides property for

the tax year.

An activity is not a rental activity if:

use in a nonrental activity of a partnership or

2. Any rental real estate activity in which

1. The average period of customer use

joint venture in its capacity as an owner of

the corporation materially participated if the

(see below) of the rental property is:

an interest in the partnership or joint

corporation was a closely held corporation

a. 7 days or less, or

venture.

that derived more than 50% of its gross

b. 30 days or less and significant

If a partner contributes the use of

receipts from real property trades or

personal services (see below) were

property to a partnership, none of the

businesses in which it materially

provided in making the rental property

partner’s distributive share of partnership

participated.

available for customer use.

income is income from a rental activity

For purposes of this rule, each interest in

Figure the average period of customer

unless the partnership is engaged in a rental

rental real estate is a separate activity,

use for a class of property by dividing the

activity.

unless the corporation elects to treat all

total number of days in all rental periods by

Also, a partner’s gross income

interests in rental real estate as one activity.

the number of rentals during the tax year. If

attributable to a guaranteed payment under

The corporation makes the election by

the activity involves renting more than one

section 707(c) is not income from a rental

attaching a statement to its original income

class of property, multiply the average

activity. The determination of whether the

tax return for the tax year. See Regulations

period of customer use of each class by the

property used in the activity is provided in

section 1.469-9(g) for details on how to

ratio of the gross rental income from that

the partner’s capacity as an owner of an

make or revoke this election.

class to the activity’s total gross rental

interest in the partnership is made on the

A real property trade or business is any

income. The activity’s average period of

basis of all the facts and circumstances.

real property development, redevelopment,

customer use equals the sum of these

construction, reconstruction, acquisition,

class-by-class average periods weighted by

Reporting Income, Deductions,

conversion, rental, operation, management,

gross income. See Regulations section

Losses, and Credits From

leasing, or brokerage trade or business.

1.469-1(e)(3)(iii).

Rental Activities

Significant personal services include only

Note. If an activity qualifies for the

services performed by individuals. To

exception described above in 2010, but has

If the corporation meets any of the five

determine if personal services are

a prior year unallowed PAL, the prior year

exceptions listed above, the corporation’s

significant, all the relevant facts and

unallowed loss is treated as a loss from a

rental of the property is not a rental activity.

circumstances are taken into consideration,

former passive activity. See Former Passive

The corporation then must determine:

including the frequency of the services, the

Activities on page 5.

1. Whether the rental of the property is a

type and amount of labor required to

3. A working interest in an oil or gas well

trade or business activity (see Trade or

perform the services, and the value of the

held directly or through an entity that does

Business Activities on page 3) and, if so,

services relative to the amount charged for

not limit the corporation’s liability (such as a

2. Whether the corporation materially

the use of the property.

general partner interest in a partnership). In

participated in the activity for the tax year.

Significant personal services do not

this case, it does not matter whether the

include excluded services. See Temporary

corporation materially participated in the

To report income, deductions, losses, or

Regulations section 1.469-1T(e)(3)(iv)(B).

activity for the tax year.

credits from a trade or business activity in

2. Extraordinary personal services were

which the corporation did not materially

If, however, the corporation’s liability was

provided in making the rental property

participate, see Trade or business activities

limited for part of the year (for example, the

available for customer use.

without material participation on page 3.

corporation converted its general partner

interest to a limited partner interest during

Extraordinary personal services are

If the corporation meets any of the five

the year), some of the corporation’s income

services provided in making rental property

exceptions listed above and the activity is a

and losses from the working interest may be

available for customer use only if they are

trade or business activity in which the

treated as passive activity gross income and

performed by individuals and the customers’

corporation materially participated, report

-2-

Instructions for Form 8810 (2010)

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2010 Page 2

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