Instructions For Form 8582 Passive Activity Loss Limitations

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be identified separately (as discussed

Forms 4684 (Section B), 4797

transactions from passive activities in

above).

(Parts I and II), and 4835.

2006.

Activity I

Example. Use Worksheet 6 if all the

Use a separate copy of Worksheet 7

loss from an activity is reported on

for each activity for which you have

A passive activity prior year

Schedule E, even though part of the

losses reported on two or more different

unallowed long-term capital loss (a 28%

loss is a current year Schedule E loss

forms or schedules or different parts of

rate loss) of $1,000 and a current year

and part of it is from a Schedule E prior

the same form or schedule.

long-term capital loss (a non-28%-rate

year unallowed loss.

loss) of $3,000.

On Worksheet 7, enter the form or

schedule and line number on the dotted

On Worksheet 6, enter the name of

Activity II

each activity and the form or schedule

line above each line 1a (for example,

A current year collectibles loss (a

Schedule D, line 12, to report a 28%

and line number on which the loss is

28% rate loss) of $230 and net income

reported. See the example for

rate loss from a partnership).

of $1,100 from Schedule E (Form

Worksheet 4. Identify each CRD from

Line 1a, column (a). Enter the net loss

1040).

Worksheet 5 on a separate line and

plus any prior year unallowed loss from

Worksheet 3

add “CRD” after the name of the

the activity that is reported on the same

Activity I has an overall loss of

activity.

form or, in the case of Schedule D and

$4,000 (current year long-term capital

Form 4797, the same part.

Column (a). For each activity entered

loss of $3,000 and a prior year

in Worksheet 6, enter the net loss plus

If you have a Schedule D 28% rate

unallowed long-term capital loss of

the prior year unallowed loss for the

loss and a Schedule D non-28%-rate

$1,000). Activity II has an overall gain

activity. Figure this amount by adding

loss, see Example of Schedule D (Form

of $870 (current year net income of

the losses in columns (b) and (c) of

1040) transactions on this page before

$1,100 less a current year long-term

Worksheets 1 and 3 or enter the loss

completing Worksheet 7.

capital loss of $230). Line 16 of Form

from column (c) of Worksheet 2.

8582 shows an allowed loss of $1,100.

Line 1b, column (a). Enter any net

Column (b). For each activity entered

income from the activity that is reported

Since Activity II has an overall gain,

in Worksheet 6, enter the amount from

on the same form or schedule (or on

the amounts shown in columns (a) and

column (c) of Worksheet 5 for the

the same part of the same form or

(b) of Worksheet 3 for that activity are

activity. These are your unallowed

schedule) as the loss on line 1a,

reported on the proper forms and

losses for 2006. Keep a record of these

column (a).

schedules and are not shown on any

amounts so the losses can be used to

other worksheet.

Example. You enter a prior year

figure your PAL next year.

unallowed loss from Form 4797, Part I,

Worksheet 5

Column (c). Subtract column (b) from

on line 1a. If the activity has a current

Activity I has an unallowed loss of

column (a). These are your allowed

year Form 4797, Part I, gain, enter the

$3,130 (line 4 of Form 8582 ($3,130)

losses for 2006. Report the amounts in

gain on line 1b, column (a). If the

less the sum of lines 10 and 14 of Form

this column on the forms and schedules

activity does not have a Form 4797,

8582 (-0-) x 100%).

normally used.

Part I, gain, enter -0- on line 1b, column

Worksheet 7

(a).

See the forms and schedules listed

This worksheet is used to figure the

under How To Report Allowed Losses

Line 1c, column (b). Subtract line 1b,

portion of the unallowed loss

on page 11. Also, see Pub. 925 for an

column (a), from line 1a, column (a),

attributable to the 28% rate loss and

extensive example of how to report

and enter the result in column (b). If line

the portion attributable to the

passive income and losses on the

1b, column (a), is more than line 1a,

non-28%-rate loss.

forms and schedules.

column (a), enter -0- in column (b).

The loss attributable to the 28% rate

Column (c). Divide each of the losses

Worksheet 7

loss ($1,000) and the loss attributable

entered in column (b) by the total of

Use Worksheet 7 for any activity listed

to the non-28%-rate loss ($3,000) are

column (b) and enter the ratio in

separate entries in Worksheet 7. The

in Worksheet 5 that has losses that are

column (c). The total of this column

reported on two or more different forms

ratio of each loss to the total of the two

must be 1.00.

losses is figured as follows. $1,000/

and schedules or on different parts of

Column (d). Multiply the unallowed

the same form or schedule (for

$4,000 = .25. $3,000/$4,000 = .75.

loss for this activity, found in Worksheet

Each of these ratios is multiplied by the

example, 28% rate and non-28%-rate

5, column (c), by each ratio in column

capital losses reported on Schedule D).

unallowed loss for Activity I, shown in

column (c) of Worksheet 5 ($3,130).

Worksheet 7 allocates the allowed and

column (b) of Worksheet 7, also enter

unallowed loss for the activity and

Unallowed losses for Activity I:

-0- for that form or schedule in column

•

allocates the allowed loss to the

28% rate loss: .25 x $3,130 =

(d).

different forms or schedules (or

$782.50.

•

different parts of the same form or

The amount in column (d) is the

Non-28%-rate loss: .75 x $3,130 =

schedule) used to report the losses.

unallowed loss for 2006. Keep a record

$2,347.50.

of this worksheet so you can use the

Only losses that would cause a

Allowed losses for Activity I:

•

losses to figure your PAL next year.

28% rate loss: $1,000 − $782.50 =

difference in tax liability if they were

reported on a different form or schedule

Column (e). Subtract the amount in

$217.50.

•

Non-28%-rate loss: $3,000 −

or on different parts of the same form or

column (d) from the loss entered on line

schedule are kept separate. Those

1a, column (a). This is the allowed loss

$2,347.50 = $652.50.

forms, schedules, and parts are:

for 2006 to enter on the forms or

The total loss allowed for Activity I

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Schedules C, E, and F.

schedules. The forms and schedules

($870) is entered in Part II of Schedule

•

Schedule D (Parts I and II (28% rate

you use must show the losses from this

D (Form 1040). The 28% rate loss

losses and non-28%-rate losses)).

column and the income, if any, for that

($217.50) is entered on the 28% Rate

activity from column (a) of Worksheet 1

Note. You must make a separate entry

Gain Worksheet (see Schedule D

or Worksheet 3.

in Schedule D, Part I or Part II, for each

instructions for line 18). Keep a record

transaction reported. See the

Example of Schedule D (Form

of the unallowed 28% rate and

Instructions for Schedule D (Form

1040) transactions. The taxpayer had

non-28%-rate losses to figure the PAL

1040).

the following Schedule D (Form 1040)

for these transactions next year.

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Instructions For Form 8582 Passive Activity Loss Limitations - 2006 Page 10

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