Partner'S Instructions For Schedule K-1 (Form 1065-B) - Partner'S Share Of Income (Loss) From An Electing Large Partnership (For Partner'S Use Only) - 2007 Page 4
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115. Activities of trading personal
7. Based on all the facts and
are limited under the passive activity
property for the account of owners of
circumstances, you participated in the
rules.
interests in the activities.
activity on a regular, continuous, and
Special allowance for rental real estate
substantial basis during the tax year.
activities. If you actively participated in
Material participation. You must
a rental real estate activity, you may be
determine if you (a) materially participated
Work counted toward material
able to deduct up to $25,000 of the loss
in each trade or business activity held
participation. Generally, any work that
from the activity from nonpassive income.
through the partnership and (b) were a
you or your spouse do in connection with
This “special allowance” is an exception
real estate professional (defined above),
an activity held through a partnership
to the general rule disallowing losses in
in each rental real estate activity held
(where you own your partnership interest
excess of income from passive activities.
through the partnership. All
at the time the work is done) is counted
The special allowance is not available if
determinations of material participation
toward material participation. However,
you were married, filed a separate return
are made based on your participation
work in connection with the activity is not
for the year, and did not live apart from
during the partnership’s tax year.
counted toward material participation if
your spouse at all times during the year.
either of the following applies.
Material participation standards for
Only individuals and qualifying estates
partners who are individuals are listed
1. The work is not the sort of work that
can actively participate in a rental real
below. Special rules apply to certain
owners of the activity would usually do
estate activity. Estates (other than
retired or disabled farmers and to the
and one of the principal purposes of the
qualifying estates), trusts, and
surviving spouses of farmers. See the
work that you or your spouse does is to
corporations cannot actively participate.
Instructions for Form 8582 for details.
avoid the passive loss or credit
You are not considered to actively
limitations.
Corporations should refer to the
2. You do the work in your capacity as
participate in a rental real estate activity if
Instructions for Form 8810 for the material
an investor and you are not directly
at any time during the tax year your
participation standards that apply to them.
interest (including your spouse’s interest)
involved in the day-to-day operations of
Individuals (other than limited
the activity. Examples of work done as an
in the activity was less than 10% (by
partners). If you are an individual (either
value) of all interests in the activity.
investor that would not count toward
a general partner or a limited partner who
material participation include:
Active participation is a less stringent
owned a general partnership interest at all
a. Studying and reviewing financial
requirement than material participation.
times during the tax year), you materially
You may be treated as actively
statements or reports on operations of the
participated in an activity only if one or
activity.
participating if you participated, for
more of the following apply.
b. Preparing or compiling summaries
example, in making management
1. You participated in the activity for
decisions or arranging for others to
or analyses of the finances or operations
more than 500 hours during the tax year.
of the activity for your own use.
provide services (such as repairs) in a
2. Your participation in the activity for
significant and bona fide sense.
c. Monitoring the finances or
the tax year constituted substantially all
operations of the activity in a
Management decisions that can count as
the participation in the activity of all
nonmanagerial capacity.
active participation include approving new
individuals (including individuals who are
tenants, deciding rental terms, approving
not owners of interests in the activity for
Effect of determination. Income
capital or repair expenditures, and other
the tax year).
(loss), deductions, and credits from an
similar decisions.
3. You participated in the activity for
activity are nonpassive if you determine
An estate is a qualifying estate if the
more than 100 hours during the tax year,
that:
decedent would have satisfied the active
•
and your participation in the activity for
You materially participated in a trade or
participation requirement for the activity
the tax year was not less than the
business activity of the partnership or
for the tax year the decedent died. A
•
participation in the activity of any other
You were a real estate professional in a
qualifying estate is treated as actively
individual (including individuals who were
rental real estate activity of the
participating for tax years ending less
not owners of interests in the activity) for
partnership.
than 2 years after the date of the
the tax year.
decedent’s death.
If you determine that you did not
4. The activity was a significant
materially participate in a trade or
The maximum special allowance that
participation activity for the tax year, and
business activity of the partnership or if
single individuals and married individuals
you participated in all significant
you have income (loss), deductions, or
filing a joint return can qualify for is
participation activities (including activities
credits from a rental activity of the
$25,000. The maximum is $12,500 for
outside the partnership) during the year
partnership (other than a rental real
married individuals who file separate
for more than 500 hours. A significant
estate activity in which you materially
returns and who live apart all times during
participation activity is any trade or
participated as a real estate professional),
the year. The maximum special allowance
business activity in which you participated
the amounts from that activity are
for which an estate can qualify is $25,000
for more than 100 hours during the tax
passive. Report passive income (losses),
reduced by the special allowance for
year and in which you did not materially
deductions, and credits as follows.
which the surviving spouse qualifies.
participate under any of the material
participation tests (other than this test 4).
1. If you have an overall gain (the
If your modified adjusted gross income
5. You materially participated in the
excess of income over deductions and
(defined below) is $100,000 or less
activity for any 5 tax years (whether or not
losses, including any prior year unallowed
($50,000 or less if married filing
consecutive) during the 10 tax years that
loss) from a passive activity, report the
separately), your loss is deductible up to
immediately precede the tax year.
income, deductions, and losses from the
the amount of the maximum special
6. The activity was a personal service
activity as indicated in the instructions for
allowance referred to in the preceding
activity and you materially participated in
the boxes in which those items were
paragraph. If your modified adjusted
the activity for any 3 tax years (whether or
reported.
gross income is more than $100,000
not consecutive) preceding the tax year.
2. If you have an overall loss (the
(more than $50,000 if married filing
A personal service activity involves the
excess of deductions and losses,
separately), the special allowance is
performance of personal services in the
including any prior year unallowed loss,
limited to 50% of the difference between
fields of health, law, engineering,
over income) or credits from a passive
$150,000 ($75,000 if married filing
architecture, accounting, actuarial
activity, report the income, deductions,
separately) and your modified adjusted
science, performing arts, consulting, or
losses, and credits from all passive
gross income. When modified adjusted
any other trade or business in which
activities using the Instructions for Form
gross income is $150,000 or more
capital is not a material income-producing
8582 or Form 8582-CR (or Form 8810), to
($75,000 or more if married filing
factor.
see if your deductions, losses, and credits
separately), there is no special allowance.
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