Instructions For Form 8582 - Passive Activity Loss Limitations

instructions for line 20) if you complete

Losses allowed in column (c) of

includes any self-charged interest

Part IV of Schedule D (Form 1040).

Worksheet 6. The amounts in column

income and deductions treated as

Keep a record of the unallowed 28%

passive activity income and deductions.

rate and non-28%-rate losses to figure

deductions allowed for 2003 for the

See Schedule D and Form 4797

the PAL for these transactions next

activities listed in that worksheet.

instructions on this page if you also had

year.

Report the loss allowed from column (c)

passive gains or losses from the sale of

of Worksheet 6 and the income, if any,

assets or of an interest in a passive

For Activity III, the pre-May 6 loss

for that activity from column (a) of

activity.

and the post-May 5 loss are separate

Worksheet 1 or 3, on the form or

entries on Worksheet 7 for that activity.

Form 4684, Section B. Any passive

schedule normally used.

The ratio of each loss to the total of the

activity gain from Form 4684 is

Losses allowed in column (e) of

two losses is figured as follows. $500/

unchanged. It was used on Form 8582

Worksheet 7. The amounts in column

$3,000 = .17. $2,500/$3,000 = .83.

to determine allowable PALs. If you do

(e) of Worksheet 7 are the losses or

Each of these ratios is multiplied by the

not have passive losses on Form 4684,

deductions allowed for 2003 for the

unallowed loss for Activity III shown in

complete Form 4684 and follow the

activity listed on that worksheet. Report

column (c) of Worksheet 5 ($2,700).

instructions for that form for where to

the losses allowed from column (e) of

report the gain.

Unallowed losses for Activity III:

Worksheet 7 and the income, if any, for

•

Pre-May 6 loss: .17 × $2,700 = $459.

If you have passive losses on Form

that activity from column (a) of

•

Post-May 5 loss: .83 × $2,700 =

4684, cross through the amount you

Worksheet 1 or 3, on the forms or

$2,241.

first entered on line 31, 32, 38a, 38b, or

schedules normally used.

39 of that form, and enter the allowed

Allowed losses for Activity III:

Schedules C and F, and Form 4835.

•

loss from the worksheet. To the left of

Pre-May 6 loss: $500 − $459 = $41.

Enter on the net profit or loss line of

•

the entry space, enter “PAL.”

Post-May 5 loss: $2,500 − $2,241 =

your schedule or form the allowed

Schedule D and Form 4797. If you

$259.

passive loss from the worksheet. To the

sold assets from a passive activity or

left of the entry space enter “PAL.”

The total loss allowed for Activity III

you sold an interest in your passive

If the net profit or loss line on your

($300) is entered in column (f), line 8,

activity, all gains from the activity must

form or schedule shows net profit for

Schedule D (Form 1040), and the

be entered on the appropriate line of

the year, reduce the net profit by the

post-May 5 loss ($259) is entered in

Schedule D or Form 4797. Identify the

allowed loss from Worksheet 6 or 7,

column (g) on the same line.

gain as “FPA.” Enter any allowed

and enter the result on the net profit or

losses for Schedule D or Form 4797 on

See the forms and schedules listed

loss line.

the appropriate line, and to the left of

under How To Report Allowed

Example. Schedule C shows net

the entry space, enter “PAL.”

Losses below. Also, see Pub. 925 for

profit for the year of $5,000 from a

an extensive example of how to report

Entire disposition with an overall

passive activity. The activity also has a

passive income and losses on the

loss. If you made an entire disposition

Form 4797 gain of $2,500 and a prior

forms and schedules.

of your interest in a passive activity and

year unallowed Schedule C loss of

that activity had an overall loss, none of

$6,000. The loss allowed for 2003 is

How To Report

the gains, if any, or losses were

$6,000. You enter a net loss of $1,000

entered on Form 8582 or the

on line 31 of Schedule C (the $5,000

Allowed Losses

worksheets. However, all the gains and

net profit for the year less the $6,000

losses must be reported on the forms

Line 4 is income. If line 4 of Form

loss allowed for the year). To the left of

or schedules normally used. To the left

8582 shows net income or zero, all the

the entry space, you enter “PAL.”

of the entry space, enter “EDPA.”

losses in columns (b) and (c) of

See Schedule D and Form 4797

Worksheets 1 and 3 and all the

Entire disposition with an overall

instructions on this page if you also had

deductions in columns (a) and (b) of

gain. Gains and losses from this

passive gains and losses from the sale

Worksheet 2 are allowed in full. Report

activity were included on Form 8582 so

of assets or of an interest in a passive

the income and losses in columns (a),

that the gains might offset other PALs.

activity.

(b), and (c) of Worksheets 1 and 3 and

Report all the gains and losses on the

Schedule E, Part I. Enter the allowed

deductions in columns (a) and (b) of

forms and schedules normally used,

loss from the worksheet on line 23 of

Worksheet 2 on the forms and

and to the left of the entry space, enter

Schedule E. An activity that has net

schedules normally used.

“EDPA.”

profit for the year and prior year

Line 16 is the same as the total of

unallowed losses will have net profit on

Publicly Traded

lines 1b, 1c, 2a, 2b, 3b, and 3c. In

line 22 and the allowed loss on line 23.

this case also, all the losses in columns

Partnerships (PTPs)

The allowed loss on line 23 will include

(b) and (c) of Worksheets 1 and 3 and

the loss allowed to the extent of the net

A PTP is a partnership whose interests

all the deductions in columns (a) and

profit. Line 24 of Schedule E will show

are traded on an established securities

(b) of Worksheet 2 are allowed in full.

total net profit and line 25 will show

market or are readily tradable on a

Report the income and losses in

total losses allowed (both passive and

secondary market (or its substantial

columns (a), (b), and (c) of Worksheets

nonpassive). Line 26 will show the total

equivalent).

1 and 3 and deductions in columns (a)

net profit or loss.

and (b) of Worksheet 2 on the forms

An established securities market

Schedule E, Parts II and III. Any net

and schedules normally used.

includes any national securities

income shown on your Schedule K-1

exchange and any local exchange

Columns (a) and (c) of Worksheet 4

that is passive income must be entered

registered under the Securities

are the same amount. In this case, all

as passive income in the appropriate

Exchange Act of 1934 or exempted

the losses in columns (b) and (c) of

column of Schedule E, Part II or III.

from registration because of the limited

Worksheet 1 and all the deductions in

Enter the passive loss allowed from

volume of transactions. It also includes

columns (a) and (b) of Worksheet 2 are

Worksheet 6 or 7 in the appropriate

any over-the-counter market.

allowed in full. Report the income and

column for passive losses. The passive

losses in columns (a), (b), and (c) of

losses allowed include the loss allowed

A secondary market generally exists

Worksheet 1 and the deductions in

to the extent of any net income from the

if a person stands ready to make a

columns (a) and (b) of Worksheet 2 on

activity. Passive net income or loss

market in the interest. An interest is

the forms and schedules normally used.

reportable on Schedule E, Part II,

treated as readily tradable if the interest

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Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 11

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