2010 Partner'S Instructions For Schedule K-1 (Form 1065-B) - Department Of The Treasury Page 4
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12Work counted toward material
Material participation. You must
able to deduct up to $25,000 of the loss
participation. Generally, any work that
determine if you (a) materially participated
from the activity from nonpassive income.
you or your spouse do in connection with
in each trade or business activity held
This “special allowance” is an exception
through the partnership and (b) were a
an activity held through a partnership
to the general rule disallowing losses in
(where you own your partnership interest
real estate professional (defined above),
excess of income from passive activities.
at the time the work is done) is counted
in each rental real estate activity held
The special allowance is not available if
toward material participation. However,
through the partnership. All
you were married, filed a separate return
work in connection with the activity is not
determinations of material participation
for the year, and did not live apart from
counted toward material participation if
are made based on your participation
your spouse at all times during the year.
either of the following applies.
during the partnership’s tax year.
Only individuals, qualifying estates,
1. The work is not the sort of work that
Material participation standards for
and qualifying revocable trusts that made
owners of the activity would usually do
partners who are individuals are listed
a section 645 election can actively
and one of the principal purposes of the
below. Special rules apply to certain
participate in a rental real estate activity.
work that you or your spouse does is to
retired or disabled farmers and to the
Estates (other than qualifying estates),
avoid the passive loss or credit
surviving spouses of farmers. See the
trusts (other than qualifying revocable
limitations.
Instructions for Form 8582 for details.
trusts that made a section 645 election),
2. You do the work in your capacity as
and corporations cannot actively
Corporations should refer to the
an investor and you are not directly
participate.
Instructions for Form 8810 for the material
involved in the day-to-day operations of
participation standards that apply to them.
You are not considered to actively
the activity. Examples of work done as an
Individuals (other than limited
participate in a rental real estate activity if
investor that would not count toward
partners). If you are an individual (either
at any time during the tax year your
material participation include:
a general partner or a limited partner who
interest (including your spouse’s interest)
a. Studying and reviewing financial
owned a general partnership interest at all
in the activity was less than 10% (by
statements or reports on operations of the
times during the tax year), you materially
value) of all interests in the activity.
activity.
participated in an activity only if one or
b. Preparing or compiling summaries
Active participation is a less stringent
more of the following apply.
or analyses of the finances or operations
requirement than material participation.
1. You participated in the activity for
of the activity for your own use.
You may be treated as actively
more than 500 hours during the tax year.
c. Monitoring the finances or
participating if you participated, for
2. Your participation in the activity for
operations of the activity in a
example, in making management
the tax year constituted substantially all
nonmanagerial capacity.
decisions or arranging for others to
the participation in the activity of all
provide services (such as repairs) in a
Effect of determination. Income
individuals (including individuals who are
significant and bona fide sense.
(loss), deductions, and credits from an
not owners of interests in the activity for
Management decisions that can count as
activity are nonpassive if you determine
the tax year).
active participation include approving new
that:
3. You participated in the activity for
tenants, deciding rental terms, approving
•
You materially participated in a trade or
more than 100 hours during the tax year,
capital or repair expenditures, and other
business activity of the partnership or
and your participation in the activity for
similar decisions.
•
You were a real estate professional in a
the tax year was not less than the
rental real estate activity of the
participation in the activity of any other
An estate is a qualifying estate if the
partnership.
individual (including individuals who were
decedent would have satisfied the active
not owners of interests in the activity) for
participation requirement for the activity
If you determine that you did not
the tax year.
for the tax year the decedent died. A
materially participate in a trade or
4. The activity was a significant
qualifying estate is treated as actively
business activity of the partnership or if
participation activity for the tax year, and
participating for tax years ending less
you have income (loss), deductions, or
you participated in all significant
than 2 years after the date of the
credits from a rental activity of the
participation activities (including activities
decedent’s death.
partnership (other than a rental real
outside the partnership) during the year
estate activity in which you materially
Modified adjusted gross income
for more than 500 hours. A significant
participated as a real estate professional),
limitation. The maximum special
participation activity is any trade or
the amounts from that activity are
allowance that single individuals and
business activity in which you participated
passive. Report passive income (losses),
married individuals filing a joint return can
for more than 100 hours during the tax
deductions, and credits as follows.
qualify for is $25,000. The maximum is
year and in which you did not materially
1. If you have an overall gain (the
$12,500 for married individuals who file
participate under any of the material
excess of income over deductions and
separate returns and who lived apart all
participation tests (other than this test 4).
losses, including any prior year unallowed
times during the year. The maximum
5. You materially participated in the
loss) from a passive activity, report the
special allowance for which an estate can
activity for any 5 tax years (whether or not
income, deductions, and losses from the
qualify is $25,000 reduced by the special
consecutive) during the 10 tax years that
activity as indicated in the instructions for
allowance for which the surviving spouse
immediately precede the tax year.
the boxes in which those items were
qualifies.
6. The activity was a personal service
reported.
activity and you materially participated in
If your modified adjusted gross income
2. If you have an overall loss (the
the activity for any 3 tax years (whether or
(defined below) is $100,000 or less
excess of deductions and losses,
not consecutive) preceding the tax year.
($50,000 or less if married filing
including any prior year unallowed loss,
A personal service activity involves the
separately), your loss is deductible up to
over income) or credits from a passive
performance of personal services in the
the amount of the maximum special
activity, report the income, deductions,
fields of health, law, engineering,
allowance referred to in the preceding
losses, and credits from all passive
architecture, accounting, actuarial
paragraph. If your modified adjusted
activities using the Instructions for Form
science, performing arts, consulting, or
gross income is more than $100,000
8582 or Form 8582-CR (or Form 8810), to
any other trade or business in which
(more than $50,000 if married filing
see if your deductions, losses, and credits
capital is not a material income-producing
separately), the special allowance is
are limited under the passive activity
factor.
limited to 50% of the difference between
rules.
7. Based on all the facts and
$150,000 ($75,000 if married filing
circumstances, you participated in the
Special allowance for rental real estate
separately) and your modified adjusted
activity on a regular, continuous, and
activities. If you actively participated in
gross income. When modified adjusted
substantial basis during the tax year.
a rental real estate activity, you may be
gross income is $150,000 or more
-4-
Instructions for Schedule K-1 (1065-B) (2010)
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