Instructions For Form 8582 - 2010 (Page 7 of 13) in pdf

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Dispositions

Qualified home mortgage interest,

An overall loss from an entire

capitalized interest expenses, and other

disposition of a passive activity is a

nonpassive loss if you have an

interest expenses (except self-charged

Disposition of an Entire

interest treated as a passive activity

aggregate loss from all other passive

Interest

activities. When figuring your modified

deduction (discussed on page 6) and

If you disposed of your entire interest in

adjusted gross income for line 7 of

interest expenses properly allocable to

a passive activity or a former passive

Form 8582, be sure to take into

passive activities).

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activity to an unrelated person in a fully

account the overall loss from the

Losses from dispositions of property

taxable transaction during the tax year,

disposition of the activity.

that produce portfolio income or

your losses allocable to the activity for

property held for investment.

Example 1. Activity with overall

the year are not limited by the PAL

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State, local, and foreign income

gain. You sell your entire interest in a

rules.

taxes.

rental real estate activity in which you

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A fully taxable transaction is a

actively participated for a gain of

Miscellaneous itemized deductions

$15,525. $7,300 of the gain is section

transaction in which you recognize all

that may be disallowed under

realized gain or loss.

1231 gain reported on Form 4797,

section 67.

Part I, and $8,225 is ordinary recapture

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Charitable contribution deductions.

If you are using the installment

income reported on Form 4797, Part II.

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Net operating loss deductions,

method to report this kind of

On line 23 of Schedule E (Form 1040),

percentage depletion carryovers under

disposition, figure the loss for the

you report a total loss of $15,450,

section 613A(d), and capital loss

current year that is not limited by the

which includes a current year $2,800

carryovers.

PAL rules by multiplying your overall

net loss and a $12,650 prior year

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loss (which does not include losses

Deductions and losses that would

unallowed loss. You have an overall

allowed in prior years) by the following

have been allowed for tax years

gain from the disposition ($15,525 –

fraction:

beginning before 1987, but for basis or

$15,450 = $75).

at-risk limitations.

Gain recognized in the current year

Because you had other passive

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Net negative section 481

activities reportable on Form 8582, you

adjustments allocated to activities other

Unrecognized gain as of the

make the following entries on

than passive activities. See Temporary

beginning of the current year

Worksheet 1. You enter the $15,525

Regulations section 1.469-2T(d)(7).

gain on the disposition in column (a),

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A partner in a PTP is not treated as

Deductions for losses from fire,

the current year loss of $2,800 in

having disposed of an entire interest in

storm, shipwreck, or other casualty or

column (b), and the prior year

an activity of a PTP until there is an

from theft if losses similar in cause and

unallowed loss of $12,650 in column

entire disposition of the partner’s

severity do not recur regularly in the

(c).

interest in the PTP.

activity.

Example 2. Activity with overall

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The deduction allowed for one-half of

Reporting an Entire

loss. You sell your entire interest in

self-employment taxes.

Disposition on Schedule D

an oil and gas limited partnership that

was your only passive activity for a gain

or Form 4797

Former Passive

of $2,000. You have a current year

If you completely dispose of your entire

Schedule E loss of $3,330 and a

Activities

interest in a passive activity or a former

Schedule E prior year unallowed loss of

passive activity, you may have to report

A former passive activity is any activity

$1,115.

net income or loss and prior year

that was a passive activity in a prior tax

Because you have an overall loss of

unallowed losses from the activity. All

year but is not a passive activity in the

$2,445 after combining the gain and

the net income and losses are reported

current tax year. A prior year unallowed

losses, none of the amounts are

on the forms and schedules normally

loss from a former passive activity is

entered on Worksheet 3 or on Form

used.

allowed to the extent of current year

8582.

income from the activity.

Combine all income and losses

You enter the net loss plus the prior

(including any prior year unallowed

If current year net income from the

year unallowed loss ($3,330 + $1,115 =

losses) from the activity for the tax year

activity is less than the prior year

$4,445) on Schedule E, Part II, column

to see if you have an overall gain or

unallowed loss, enter the prior year

(h), and the $2,000 gain on the sale on

loss.

unallowed loss and any current year

Schedule D, in either Part I or Part II,

If you have an overall gain and you

net income from the activity on Form

depending on how long you held the

have other passive activities to report

8582 and the applicable worksheets.

partnership interest.

on Form 8582, include the income,

losses, and prior year unallowed losses

Disposition of Less Than an

If current year net income from the

on Worksheet 1, 2, or 3.

activity is more than or equal to the

Entire Interest

prior year unallowed loss from the

If you have an overall gain and this

Gains and losses from the disposition

activity, report the income and loss on

is your only passive activity or a former

of less than an entire interest in an

the forms and schedules normally used;

passive activity, report all income and

activity are treated as part of the net

do not enter the amounts on Form

losses (including any prior year

income or net loss from the activity for

8582.

unallowed losses) on the forms and

the current year.

schedules normally used and do not

If the activity has a net loss for the

use Form 8582.

A disposition of less than

current year, enter the prior year

substantially all of an entire

unallowed loss (but not the current year

If you have an overall loss when you

interest does not trigger the

CAUTION

loss) on Form 8582 and the applicable

combine the income and losses, do not

allowance of prior year unallowed

worksheets.

use the worksheets or Form 8582 for

losses.

the activity. All losses (including prior

To report a disposition of a former

year unallowed losses) are allowed in

Disposition of substantially all of an

passive activity, follow the rules under

activity. You may treat the disposition

full. Report the income and losses on

Dispositions, next.

the forms and schedules normally used.

of substantially all of an activity as a

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Instructions for Form 8582 (2010)

Instructions For Form 8582 - 2010 Page 7

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