Instructions For Form 8582 - 2010 Page 3


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
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
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
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
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
See the instructions for Worksheets
activity for the tax year the decedent
Example. If a partner contributes
1, 2, and 3 on page 8.
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
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
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
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
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
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
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,
page 4).
activities that are significant
Deciding on rental terms,
Instructions for Form 8582 (2010)


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