Instructions For Form 8582 - Passive Activity Loss Limitations

2 0 03

Department of the Treasury

Internal Revenue Service

Instructions for Form 8582

Passive Activity Loss Limitations

Section references are to the Internal Revenue Code, unless otherwise noted.

from passive activities. You do not

partner or as a beneficiary of an estate

General Instructions

have to file Form 8582 if you meet

or a trust.

Exception 1 or 2 below.

For the definition of modified

A Change To Note

adjusted gross income, see the

Exception 1

For sales and other dispositions after

instructions for line 7 on page 8.

You do not have an overall loss when

May 5, 2003 (and installment payments

If all the above conditions are met,

you combine all your net income and

received after that date), the maximum

your rental real estate losses are not

net losses (including any prior year

tax rate on net capital gain has been

limited, and you do not need to

unallowed losses) from business or

reduced. Therefore, you must figure

complete Form 8582. Enter losses

rental passive activities. Overall loss is

your allowed passive activity losses for

reported on line 22, Part I, of Schedule

defined under Definitions on page 2.

2003 separately for pre-May 6 and

E (Form 1040) on line 23 of Schedule

post-May 5 dispositions.

In figuring your overall gain or loss

E. For losses from a partnership or an

from all passive activities for the year,

S corporation, enter the amount of the

Purpose of Form

do not include the following:

allowable loss from Schedule K-1 in

Form 8582 is used by noncorporate

Part II, column (f), of Schedule E. Enter

1. Net income that is not passive

taxpayers to figure the amount of any

losses reported on line 32 of Form

activity income. See Passive Activity

passive activity loss (PAL) for the

4835, Farm Rental Income and

Income on page 5.

current tax year.

Expenses, on line 33c of Form 4835.

2. Net losses that are not passive

A PAL occurs when total losses

activity net losses. See Activities That

If you do not qualify for Exception 1

(including prior year unallowed losses)

Are Not Passive Activities on page 2.

or 2, you must complete Form 8582.

from all your passive activities exceed

3. Net income or net loss from your

the total income from all your passive

interest in any publicly traded

Coordination With Other

activities.

partnership (PTP). See Publicly

Limitations

Traded Partnerships (PTPs)

Generally, passive activities include:

•

beginning on page 11.

Trade or business activities in which

Generally, PALs are subject to other

4. Any overall loss from an entire

you did not materially participate for the

limitations (for example, basis and

disposition of a passive activity. See

tax year.

at-risk limitations) before they are

•

Dispositions beginning on page 6 for

Rental activities, regardless of your

subject to the passive loss limitations.

more information.

participation.

Once a loss becomes allowable under

these other limitations, you must

PALs cannot be used to offset

Exception 2

determine whether the loss is limited

income from nonpassive activities.

under the passive loss rules. See Form

However, a special allowance for rental

You actively participated in rental real

6198, At-Risk Limitations, for details on

real estate activities may allow some

estate activities (see Special

the at-risk rules. Also, capital losses

losses even if the losses exceed

Allowance for Rental Real Estate

that are allowable under the passive

passive income.

Activities on page 3), and you meet all

loss rules may be limited under the

PALs not allowed in the current year

of the following conditions.

•

capital loss limitations of section 1211.

are carried forward until they are

Rental real estate activities with

Percentage depletion deductions that

allowed either against passive activity

active participation were your only

are allowable under the passive loss

income, against the special allowance,

passive activities.

•

rules may be limited under section

if applicable, or when you sell or

You have no prior year unallowed

613A(d).

exchange your entire interest in the

losses from these activities.

•

activity in a fully taxable transaction to

Your total loss from the rental real

Before Completing Form

an unrelated party.

estate activities was not more than

$25,000 ($12,500 if married filing

8582

For more information, see Pub. 925,

separately and you lived apart from

Passive Activity and At-Risk Rules,

To find out if your activity is treated as a

your spouse all year).

which contains a filled-in example of

•

passive activity, read:

If you are married filing separately,

Form 8582 with step-by-step

•

Trade or Business Activities if your

you lived apart from your spouse all

instructions for reporting losses from

activity is a trade or business activity

year.

passive activities.

•

(page 3).

You have no current or prior year

•

Note: Corporations subject to the

Rental Activities if your activity is

unallowed credits from a passive

passive activity rules must use Form

the renting of tangible property

activity.

8810, Corporate Passive Activity Loss

•

(beginning on page 2).

Your modified adjusted gross income

•

and Credit Limitations.

Material Participation (page 4).

was not more than $100,000 (not more

•

Grouping of Activities (page 5).

than $50,000 if married filing separately

Who Must File

and you lived apart from your spouse

To find out how to treat income and

Form 8582 is filed by individuals,

all year).

deductions from your activity, read:

•

estates, and trusts who have losses

You do not hold any interest in a

Passive Activity Income and

(including prior year unallowed losses)

rental real estate activity as a limited

Deductions, Former Passive

Cat. No. 64294A

Instructions For Form 8582 - Passive Activity Loss Limitations - 2003

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