Instructions For Form 8582 Passive Activity Loss Limitations

when Form 8582 is completed to figure

for each activity, and either enter the

bonds used to pay higher education

the loss allowed for the current year.

overall gain for the activity in column (d)

expenses,

•

or enter the overall loss for the activity

The exclusion of amounts received

Worksheet 2

in column (e). Do not enter amounts

under an employer’s adoption

from columns (d) and (e) on Form

assistance program, or

Use Worksheet 2 to figure the amounts

•

8582. These amounts will be used

The student loan interest deduction.

to enter on lines 2a and 2b for

when Form 8582 is completed to figure

commercial revitalization deductions

At the time these instructions

the loss allowed for the current year.

(CRD) from rental real estate activities

went to print, Congress was

(see Commercial revitalization

considering legislation that

Part II—Special

CAUTION

deduction (CRD) on page 4). Do not

would extend the deduction for tuition

include the following amounts.

Allowance for Rental

•

and fees that expired at the end of

Income or other deductions from the

2005. To find out if this legislation was

same activity. Instead, report any net

Real Estate Activities

enacted, and for details, go to

income or net loss from the activity,

With Active Participation

gov, click on More Forms and

except for the CRD, in Worksheet 1 if

Publications, and then on What’s Hot in

you actively participated in the activity

Use Part II to figure the maximum

forms and publications, or see Pub 553.

or in Worksheet 3 if you did not actively

amount of rental loss allowed if you

participate.

If the legislation is enacted, include

have a net loss from a rental real estate

•

CRDs from passive activities other

tuition and fees deduction in the above

activity with active participation.

than rental real estate activities.

list.

Enter all numbers in Part II as

Instead, report these deductions as part

positive amounts (that is, greater than

Include in modified adjusted gross

of the net income or loss from the

zero).

income any portfolio income and

passive activity in Worksheet 3.

expenses that are clearly and directly

Example. Line 5 has a loss of

Column (a). Enter the current year

allocable to portfolio income. Also

$42,000 (reported as a positive

CRD from each rental real estate

include any income that is treated as

amount) and line 9 is $25,000. You

activity. Enter the total of column (a) on

nonpassive income, such as overall

enter $25,000 on line 10 (the smaller of

line 2a of Form 8582.

gain from a PTP and net income from

line 5 or line 9, both treated as positive

Column (b). Enter the unallowed

an activity or item of property subject to

amounts).

CRDs from the prior year for each

the recharacterization of passive

rental real estate activity. Enter the total

Married persons filing separate

income rules. When figuring modified

of column (b) on line 2b of Form 8582.

returns who lived with their

adjusted gross income, include any

spouses at any time during the

overall loss from the entire disposition

CAUTION

Column (c). Combine the amounts in

year are not eligible for the special

of a passive activity (considered a

columns (a) and (b) for each activity

allowance. They must enter -0- on line

nonpassive loss).

and enter the overall loss for the activity

10 and go to line 15.

in column (c). Do not enter amounts

Example. Your adjusted gross

from column (c) on Form 8582. These

Line 5. Enter on line 5 the smaller of

income on line 38 of Form 1040 is

amounts will be used when Form 8582

the loss on line 1d or the loss on line 4.

$92,000, and you have taxable social

is completed to figure the loss allowed

Example. Line 1d has a loss of

security benefits of $5,500 on line 20b.

for the current year.

$3,000, line 2c is zero, and line 3d has

Your modified adjusted gross income is

a gain of $100. The combined loss on

$86,500 ($92,000 – $5,500).

Worksheet 3

line 4 is $2,900. You enter $2,900 as a

Line 9. Do not enter more than

Use Worksheet 3 to figure the amounts

positive number on line 5 (the smaller

$12,500 on line 9 if you are married

to enter on lines 3a through 3c for:

of the loss on line 1d or the loss on

filing a separate return and you and

1. Passive trade or business

line 4).

your spouse lived apart at all times

activities,

Line 6. Married persons filing separate

during the year.

2. Passive rental real estate

returns who lived apart from their

activities that do not qualify for the

spouses at all times during the year

Part III—Special

special allowance (but do not include

must enter $75,000 on line 6 instead of

CRDs reported in Worksheet 2), and

Allowance for

$150,000.

3. Rental activities other than rental

Line 7. To figure modified adjusted

Commercial

real estate activities.

gross income, combine all the amounts

Revitalization

used to figure adjusted gross income

Column (a). Enter the current year net

except do not take into account:

income for each activity. Enter the total

•

Deductions From Rental

Passive income or loss included on

of column (a) on line 3a of Form 8582.

Form 8582,

(See the example under Column (a) for

Real Estate Activities

•

Any rental real estate loss allowed to

Worksheet 1, on page 7.)

Use Part III to figure the maximum

real estate professionals (defined under

Column (b). Enter the current year net

amount of commercial revitalization

Activities That Are Not Passive

loss for each activity. Enter the total of

deductions allowed if you have a

Activities on page 2),

column (b) on line 3b of Form 8582.

•

commercial revitalization deduction

Any overall loss from a PTP,

(See the example under Column (b) of

•

from a rental real estate activity.

The taxable amount of social security

Worksheet 1, on page 7.)

and tier 1 railroad retirement benefits,

Enter all numbers in Part III as

•

Column (c). Enter the unallowed

The deduction allowed under section

positive amounts (that is, greater than

losses for the prior years for each

219 for contributions to IRAs and

zero.)

activity. You find these amounts on

certain other qualified retirement plans,

•

Worksheet 5, column (c), of your 2005

The domestic production activities

Married persons filing separate

Form 8582. Enter the total of column

deduction,

returns who lived with their

•

The deduction allowed for one-half of

spouses at any time during the

CAUTION

line 3c of Form 8582.

self-employment taxes,

year are not eligible for the special

•

Columns (d) and (e). Combine income

The exclusion from income of interest

allowance. They must enter -0- on line

and losses in columns (a) through (c)

from series EE and I U.S. savings

14 and go to line 15.

-8-

Instructions For Form 8582 Passive Activity Loss Limitations - 2006 Page 8

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