Instructions For Form 8582 - 2010 (Page 3 of 13) in pdf

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The rental of property is incidental to

If the activity is a trade or business

participation passive activities (defined

an activity of holding property for

activity in which you did not materially

on page 4), see Pub. 925 for how to

investment if the main purpose of

participate, enter the income and losses

report their income or losses.

holding the property is to realize a gain

from the activity on Worksheet 3.

•

Special Allowance for

from its appreciation and the gross

If the activity is a trade or business

rental income is less than 2% of the

activity in which you did materially

Rental Real Estate

smaller of the unadjusted basis or the

participate, report any income or loss

fair market value (FMV) of the property.

from the activity on the forms or

Activities

schedules normally used.

Unadjusted basis is the cost of the

Active participation. If you actively

property without regard to depreciation

If the rental activity did not meet any

participated in a passive rental real

deductions or any other basis

of the five exceptions, it is generally a

estate activity, you may be able to

adjustment described in section 1016.

passive activity. However, special rules

deduct up to $25,000 of loss from the

apply if you conduct the rental activity

The rental of property is incidental to

activity from your nonpassive income.

through a PTP or if any of the rules

a trade or business activity if:

This special allowance is an exception

described under Recharacterization of

a. You own an interest in the trade

to the general rule disallowing losses in

Passive Income on page 6 apply. See

or business activity during the tax year,

excess of income from passive

the PTP rules beginning on page 12.

b. The rental property was mainly

activities.

If none of the special rules apply,

used in the trade or business activity

The special allowance is not

during the tax year or during at least 2

enter the income and losses from the

available if you were married, are filing

passive rental activity on Worksheet 1,

of the 5 preceding tax years, and

a separate return for the year, and lived

2, or 3.

c. The gross rental income from the

with your spouse at any time during the

property is less than 2% of the smaller

Worksheet 1 is for passive rental

year.

of the unadjusted basis or the FMV of

real estate activities in which you

Only an individual, a qualifying

the property.

actively participated. See Special

estate, or a qualified revocable trust

Allowance for Rental Real Estate

Lodging provided for the employer’s

that made an election to treat the trust

Activities beginning on this page.

convenience to an employee or the

as part of the decedent’s estate may

employee’s spouse or dependents is

Worksheet 2 is for commercial

actively participate in a rental real

incidental to the activity or activities in

revitalization deductions (CRDs) from

estate activity. Unless future regulations

which the employee performs services.

rental real estate activities. CRDs from

provide an exception, limited partners

4. You customarily make the rental

rental real estate activities are not

are not treated as actively participating

property available during defined

entered on Worksheet 1 or 3. See

in a partnership’s rental real estate

business hours for nonexclusive use by

Commercial revitalization deduction

activity.

various customers.

(CRD) on page 4.

A qualifying estate is the estate of a

5. You provide property for use in a

Worksheet 3 is for passive rental

decedent for tax years ending less than

nonrental activity of a partnership,

real estate activities in which you did

2 years after the date of the decedent’s

S corporation, or a joint venture in your

not actively participate, activities of

death if the decedent would have

capacity as an owner of an interest in

renting personal property, and other

satisfied the active participation

the partnership, S corporation, or joint

passive trade or business activities.

requirements for the rental real estate

venture.

See the instructions for Worksheets

activity for the tax year the decedent

Example. If a partner contributes

1, 2, and 3 on page 8.

died.

the use of property to a partnership,

A qualified revocable trust may elect

Trade or Business

none of the partner’s distributive share

to be treated as part of a decedent’s

of partnership income is income from a

Activities

estate for purposes of the special

rental activity unless the partnership is

allowance for active participation in

engaged in a rental activity.

A trade or business activity is an

rental real estate activities. The election

activity (other than a rental activity or

must be made by both the executor (if

an activity treated as incidental to an

Also, a partner’s gross income from

any) of the decedent’s estate and the

activity of holding property for

a guaranteed payment under section

trustee of the revocable trust. For

investment) that:

707(c) is not income from a rental

details, see Regulations section

activity. The determination of whether

1. Involves the conduct of a trade or

1.645-1.

the property used in the activity is

business (within the meaning of section

You are not considered to actively

provided in the partner’s capacity as an

162),

participate in a rental real estate activity

owner of an interest in the partnership

2. Is conducted in anticipation of

if at any time during the tax year your

is made on the basis of all the facts and

starting a trade or business, or

interest (including your spouse’s

circumstances.

3. Involves research or experimental

interest) in the activity was less than

expenditures deductible under section

10% (by value) of all interests in the

Reporting Income and

174 (or that would be if you chose to

activity.

Losses From the Activities

deduct rather than capitalize them).

Active participation is a less stringent

If an activity meets any of the five

Trade or business activities are

requirement than material participation

exceptions listed above, it is not a

generally reported on Schedule C

(see Material Participation on page 4).

rental activity. You must then

(Form 1040), Profit or Loss From

You may be treated as actively

determine:

Business (Sole Proprietorship),

participating if, for example, you

1. Whether your rental of the

Schedule C-EZ (Form 1040), Net Profit

participated in making management

property is a trade or business activity

From Business (Sole Proprietorship), or

decisions or arranged for others to

(see Trade or Business Activities on

Schedule F (Form 1040), Profit or Loss

provide services (such as repairs) in a

this page) and, if so,

From Farming, or in Part II or III of

significant and bona fide sense.

2. Whether you materially

Schedule E (Form 1040). See Publicly

Management decisions that may count

participated in the activity for the tax

Traded Partnerships (PTPs) beginning

as active participation include:

•

year (see Material Participation on

on page 12. For trade or business

Approving new tenants,

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page 4).

activities that are significant

Deciding on rental terms,

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Instructions for Form 8582 (2010)

Instructions For Form 8582 - 2010 Page 3

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