Instructions For Form 8582-Cr - Passive Activity Credit Limitations

did not own any interest in the

and your spouse file a joint return for

may be treated as a single activity if

activity) for the year.

the tax year.

the activities make up an appropriate

3. You participated in the activity

economic unit for the measurement of

Test for investors. Work done as

for more than 100 hours during the

gain or loss under the passive activity

an investor in an activity is not treated

tax year, and you participated at least

rules.

as participation unless you were

as much as any other individual

directly involved in the day-to-day

Whether activities make up an

(including individuals who did not own

management or operations of the

appropriate economic unit depends

any interest in the activity) for the

activity. For purposes of this test,

on all the relevant facts and

year.

work done as an investor includes:

circumstances. The factors given the

4. The activity is a significant

1. Studying and reviewing

greatest weight in determining

participation activity for the tax year,

financial statements or reports on

whether activities make up an

and you participated in all significant

operations of the activity,

appropriate economic unit are:

participation activities during the year

2. Preparing or compiling

1. Similarities and differences in

for more than 500 hours.

summaries or analyses of the

types of trades or businesses,

A significant participation activity

finances or operations of the activity

2. The extent of common control,

is any trade or business activity in

for your own use, and

3. The extent of common

which you participated for more than

3. Monitoring the finances or

ownership,

100 hours during the year and in

operations of the activity in a

4. Geographical location, and

which you did not materially

nonmanagerial capacity.

5. Interdependencies between or

participate under any of the material

among the activities.

participation tests (other than this

Special rules for limited partners.

fourth test).

If you were a limited partner in an

Example. You have a significant

5. You materially participated in

activity, you generally did not

ownership interest in a bakery and a

the activity for any 5 (whether or not

materially participate in the activity.

movie theater in Baltimore and in a

consecutive) of the 10 immediately

You did materially participate in the

bakery and a movie theater in

preceding tax years.

activity, however, if you met material

Philadelphia. Depending on all the

6. The activity is a personal

participation test 1, 5, or 6 (see Tests

relevant facts and circumstances,

service activity in which you

for individuals beginning on page 3)

there may be more than one

materially participated for any 3

for the tax year.

reasonable method for grouping your

(whether or not consecutive)

However, for purposes of the

activities. For instance, the following

preceding tax years.

material participation tests, you are

groupings may or may not be

An activity is a personal service

not treated as a limited partner if you

permissible.

activity if it involves the performance

•

also were a general partner in the

A single activity.

of personal services in the fields of

•

partnership at all times during the

A movie theater activity and a

health, law, engineering, architecture,

partnership’s tax year ending with or

bakery activity.

accounting, actuarial science,

•

within your tax year (or, if shorter,

A Baltimore activity and a

performing arts, consulting, or in any

during the portion of the partnership’s

Philadelphia activity.

other trade or business in which

•

tax year in which you directly or

Four separate activities.

capital is not a material income-

indirectly owned your limited partner

producing factor.

Once you choose a grouping

interest).

7. Based on all the facts and

under these rules, you must continue

A limited partner’s share of an

circumstances, you participated in the

using that grouping in later tax years

electing large partnership’s taxable

activity on a regular, continuous, and

unless a material change in the facts

income or loss from all trade or

substantial basis during the tax year.

and circumstances makes it clearly

business and rental activities is

inappropriate.

You did not materially participate in

treated as income or loss from the

the activity under this seventh test,

conduct of a single passive trade or

The IRS may regroup your

however, if you participated in the

activities if your grouping fails to

business activity.

activity for 100 hours or less during

reflect one or more appropriate

Special rules for certain retired or

the tax year.

economic units and one of the

disabled farmers and surviving

Your participation in managing the

primary purposes of your grouping is

spouses of farmers. Certain

activity does not count in determining

to avoid the passive activity

retired or disabled farmers and

whether you materially participated

limitations.

surviving spouses of farmers are

under this test if:

treated as materially participating in a

Limitation on grouping certain

a. Any person (except you)

farming activity if the real property

activities. The following activities

received compensation for performing

used in the activity meets the estate

may not be grouped together.

services in the management of the

tax rules for special valuation of farm

1. A rental activity with a trade or

activity, or

property passed from a qualifying

business activity unless the activities

b. Any individual spent more

decedent. See Temporary

being grouped together make up an

hours during the tax year performing

Regulations section 1.469-5T(h)(2).

appropriate economic unit and:

services in the management of the

Estates and trusts. The PAC

a. The rental activity is

activity than you did (regardless of

limitations apply to an estate or trust.

insubstantial relative to the trade or

whether the individual was

See Temporary Regulations sections

business activity or vice versa, or

compensated for the management

1.469-1T(b)(2) and (3). The rules for

b. Each owner of the trade or

services).

determining material participation for

business activity has the same

this purpose have not yet been

Test for a spouse. Participation by

proportionate ownership interest in

issued.

your spouse during the tax year in an

the rental activity. If so, the portion of

activity you own may be counted as

the rental activity involving the rental

Grouping of Activities

your participation in the activity, even

of property used in the trade or

if your spouse did not own an interest

Generally, one or more trade or

business activity may be grouped

in the activity and whether or not you

business activities or rental activities

with the trade or business activity.

-4-

Instructions For Form 8582-Cr - Passive Activity Credit Limitations - 2008 Page 4

Related Articles

Related forms

Related Categories