Instructions For Form 8582 - 2010 (Page 4 of 13) in pdf

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Material Participation

Approving capital or repair

personal services in the fields of health,

expenditures, and

law, engineering, architecture,

For the material participation tests listed

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accounting, actuarial science,

Other similar decisions.

below, participation generally includes

performing arts, consulting, or in any

any work done in connection with an

The maximum special allowance is:

other trade or business in which capital

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activity if you owned an interest in the

$25,000 for single individuals and

is not a material income-producing

activity at the time you did the work.

married individuals filing a joint return

factor.

The capacity in which you did the work

for the tax year.

7. Based on all the facts and

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does not matter. However, work is not

$12,500 for married individuals who

circumstances, you participated in the

participation if:

file separate returns for the tax year

activity on a regular, continuous, and

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It is not work that an owner would

and lived apart from their spouses at all

substantial basis during the tax year.

customarily do in the same type of

times during the tax year.

You did not materially participate in

activity, and

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$25,000 for a qualifying estate

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the activity under this seventh test,

One of your main reasons for doing

reduced by the special allowance for

however, if you participated in the

the work was to avoid the disallowance

which the surviving spouse qualified.

activity for 100 hours or less during the

of losses or credits from the activity

tax year.

Modified adjusted gross income

under the passive activity rules.

limitation. If your modified adjusted

Your participation in managing the

Proof of participation. You may

gross income (see the instructions for

activity does not count in determining

prove your participation in an activity by

line 7 on page 9) is $100,000 or less

whether you materially participated

any reasonable means. You do not

($50,000 or less if married filing

under this test if:

have to maintain contemporaneous

separately), your loss is deductible up

a. Any person (except you) received

daily time reports, logs, or similar

to the amount of the maximum special

compensation for performing services

documents if you can establish your

allowance referred to in the preceding

in the management of the activity, or

participation by other reasonable

paragraph.

b. Any individual spent more hours

means. For this purpose, reasonable

during the tax year performing services

means include, but are not limited to,

If your modified adjusted gross

in the management of the activity than

identifying services performed over a

income is more than $100,000 ($50,000

you did (regardless of whether the

period of time and the approximate

if married filing separately) but less than

individual was compensated for the

number of hours spent performing the

$150,000 ($75,000 if married filing

management services).

services during that period, based on

separately), your special allowance is

appointment books, calendars, or

limited to 50% of the difference

Test for a spouse. Participation by

narrative summaries.

between $150,000 ($75,000 if married

your spouse during the tax year in an

Tests for individuals. You materially

filing separately) and your modified

activity you own may be counted as

adjusted gross income.

participated for the tax year in an

your participation in the activity even if

activity if you satisfy at least one of the

your spouse did not own an interest in

Generally, if your modified adjusted

following tests.

the activity and whether or not you and

gross income is $150,000 or more

your spouse file a joint return for the tax

1. You participated in the activity for

($75,000 or more if married filing

year.

more than 500 hours.

separately), there is no special

2. Your participation in the activity

Tests for investors. Work done as an

allowance.

for the tax year was substantially all of

investor in an activity is not treated as

the participation in the activity of all

If you qualify under the active

participation unless you were directly

individuals (including individuals who

participation rules, use Worksheet 1

involved in the day-to-day management

did not own any interest in the activity)

(see page 8).

or operations of the activity. For

for the year.

purposes of this test, work done as an

Commercial revitalization deduction

3. You participated in the activity for

investor includes:

(CRD). The special $25,000 allowance

more than 100 hours during the tax

1. Studying and reviewing financial

for the CRD from rental real estate

year, and you participated at least as

statements or reports on operations of

activities is not subject to the active

much as any other individual (including

the activity.

participation rules or modified adjusted

individuals who did not own any interest

2. Preparing or compiling

gross income limits discussed earlier.

in the activity) for the year.

summaries or analyses of the finances

The $25,000 allowance must first be

4. The activity is a significant

or operations of the activity for your

applied to losses from rental real estate

participation activity for the tax year,

own use.

activities with active participation,

and you participated in all significant

3. Monitoring the finances or

figured without regard to the CRD (see

participation activities during the year

operations of the activity in a

Part II). Any remaining portion of the

for more than 500 hours.

nonmanagerial capacity.

$25,000 allowance is available for the

A significant participation activity is

CRD from rental real estate activities

Special rules for limited partners. If

any trade or business activity in which

(see Part III). See the instructions for

you were a limited partner in an activity,

you participated for more than 100

Worksheet 2 on page 8.

you generally did not materially

hours during the year and in which you

participate in the activity. You did

did not materially participate under any

You cannot claim a CRD for a

materially participate in the activity,

of the material participation tests (other

building placed in service after

however, if you met material

than this fourth test).

December 31, 2009.

CAUTION

participation test 1, 5, or 6 (see Tests

5. You materially participated in the

for individuals on this page) for the tax

activity for any 5 (whether or not

You can claim a current year CRD

year.

consecutive) of the 10 immediately

for 2010, only if you were a partner or

preceding tax years.

shareholder in a pass-through entity

However, for purposes of the

6. The activity is a personal service

that uses a fiscal year and

material participation tests, you are not

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activity in which you materially

the tax year began in 2009,

treated as a limited partner if you also

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participated for any 3 (whether or not

the building was placed in service in

were a general partner in the

consecutive) preceding tax years.

2009, and

partnership at all times during the

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the qualified revitalization

An activity is a personal service

partnership’s tax year ending with or

expenditures were made in 2009.

activity if it involves the performance of

within your tax year (or, if shorter,

-4-

Instructions for Form 8582 (2010)

Instructions For Form 8582 - 2010 Page 4

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