Instructions For Form 8582-Cr - Passive Activity Credit Limitations

return for the year, and lived with your

Modified adjusted gross income

you chose to deduct rather than

spouse at any time during the year.

limitation. If your modified adjusted

capitalize them).

gross income (defined in the

Only an individual, a qualifying

instructions for line 10 on page 10) is

Reporting Credits

estate, or a qualified revocable trust

$100,000 or less ($50,000 or less if

From the Activities

that made an election to treat the

married filing separately), figure your

trust as part of the decedent’s estate

credits based on the amount of the

Trade or business activities with

may actively participate in a rental

maximum special allowance referred

material participation. If you

real estate activity. Unless future

to in the preceding paragraph.

materially participated in a trade or

regulations provide an exception,

business activity, the activity is not a

If your modified adjusted gross

limited partners are not treated as

passive activity. Report the credits

income is more than $100,000

actively participating in a

from the activity on the forms you

($50,000 if married filing separately)

partnership’s rental real estate

normally use.

but less than $150,000 ($75,000 if

activity.

married filing separately), your

Trade or business activities

A qualifying estate is the estate of

special allowance is limited to 50% of

without material participation. If

a decedent for tax years ending less

you did not materially participate in a

the difference between $150,000

than 2 years after the date of the

($75,000 if married filing separately)

trade or business activity, the activity

decedent’s death if the decedent

and your modified adjusted gross

is a passive activity. Generally, you

would have satisfied the active

must use Worksheet 4 on page 9 to

income.

participation requirements for the

figure the amount to enter on Form

Generally, if your modified

rental real estate activity for the tax

8582-CR for each trade or business

adjusted gross income is $150,000 or

year the decedent died.

activity in which you did not materially

more ($75,000 or more if married

participate. However, if you held the

A qualified revocable trust may

filing separately), there is no special

activity through a PTP, special rules

elect to be treated as part of a

allowance.

apply. See Publicly Traded

decedent’s estate for purposes of the

Partnerships (PTPs) on page 14.

However, for low-income housing

special allowance for active

credits for property placed in service

participation in rental real estate

Material Participation

before 1990 and for rehabilitation

activities. The election must be made

credits, the limits on modified

by both the executor (if any) of the

For the material participation tests

adjusted gross income are increased.

decedent’s estate and the trustee of

that follow, participation generally

If your modified adjusted gross

the revocable trust. For details, see

includes any work done in connection

income is more than $200,000

Regulations section 1.645-1.

with an activity if you owned an

($100,000 if married filing separately)

interest in the activity at the time you

You are not considered to actively

but less than $250,000 ($125,000 if

did the work. The capacity in which

participate in a rental real estate

married filing separately), your

you did the work does not matter.

activity if at any time during the tax

special allowance is limited to 50% of

However, work is not participation if:

year your interest (including your

•

the difference between $250,000

It is not work that an owner would

spouse’s interest) in the activity was

($125,000 if married filing separately)

customarily do in the same type of

less than 10% (by value) of all

and your modified adjusted gross

activity, and

interests in the activity.

•

income.

One of your main reasons for doing

the work was to avoid the

If your modified adjusted gross

Active participation is a less

disallowance of losses or credits from

stringent requirement than material

income is $250,000 or more

the activity under the passive activity

($125,000 or more if married filing

participation (see Material

rules.

separately), there is no special

Participation beginning on this page).

You may be treated as actively

allowance.

Proof of participation. You may

participating if, for example, you

prove your participation in an activity

No modified adjusted gross

participated in making management

by any reasonable means. You do

income limitation applies when

decisions or arranging for others to

not have to maintain

figuring the special allowance for

provide services (such as repairs) in

contemporaneous daily time reports,

low-income housing credits for

a significant and bona fide sense.

logs, or similar documents if you can

property placed in service after 1989

Management decisions that may

establish your participation by other

(other than from a pass-through entity

count as active participation include:

reasonable means. For this purpose,

in which you acquired your interest

•

Approving new tenants,

reasonable means include, but are

before 1990).

•

Deciding on rental terms,

not limited to, identifying services

•

Approving capital or repair

performed over a period of time and

Trade or Business

expenditures, and

the approximate number of hours

•

Activities

Other similar decisions.

spent performing the services during

that period, based on appointment

A trade or business activity is an

The maximum special allowance

books, calendars, or narrative

activity (other than a rental activity or

is:

summaries.

•

an activity treated as incidental to an

$25,000 for single individuals and

activity of holding property for

Tests for individuals. You

married individuals filing a joint return

investment) that:

materially participated for the tax year

for the tax year.

•

in an activity if you satisfy at least one

$12,500 for married individuals

1. Involves the conduct of a trade

of the following tests.

who file separate returns for the tax

or business (within the meaning of

year and who lived apart from their

section 162),

1. You participated in the activity

spouses at all times during the tax

2. Is conducted in anticipation of

for more than 500 hours.

year.

starting a trade or business, or

2. Your participation in the activity

•

$25,000 for a qualifying estate

3. Involves research or

for the tax year was substantially all

reduced by the special allowance for

experimental expenditures deductible

of the participation in the activity of all

which the surviving spouse qualified.

under section 174 (or that would be if

individuals (including individuals who

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Instructions For Form 8582-Cr - Passive Activity Credit Limitations - 2008 Page 3

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