Instructions For Form 8582 - Passive Activity Loss Limitations

is regularly quoted by persons, such as

prior year unallowed loss of $3,500

prior year unallowed losses in column

brokers or dealers, who are making a

from the passive activities of a PTP.

(a) of Worksheet 6 (or Worksheet 7 if

market in the interest.

You have a $4,500 overall gain ($8,000

applicable). The losses in column (c) of

− $3,500) that is nonpassive income.

Worksheet 6 (column (e) of Worksheet

The substantial equivalent of a

On Schedule E, Part II, you report the

7) are the allowed losses to report on

secondary market exists if there is no

$4,500 net gain as nonpassive income

your forms or schedules. Report these

identifiable market maker, but holders

in column (j). In column (g), you report

losses and any income from the PTP

of interests have a readily available,

the remaining Schedule E gain of

on the forms and schedules normally

regular, and ongoing opportunity to sell

$3,500 ($8,000 − $4,500) as passive

used.

or exchange interests through a public

income. On the appropriate line of Form

means of obtaining or providing

4. If you have an overall loss and

4797, you report the prior year

information on offers to buy, sell, or

you disposed of your entire interest in

unallowed loss of $3,500. You enter

exchange interests. Similarly, the

the PTP to an unrelated person in a

“From PTP” to the left of each entry

substantial equivalent of a secondary

fully taxable transaction during the

space.

market exists if prospective buyers and

year, your losses (including prior year

3. If you have an overall loss (but

sellers have the opportunity to buy, sell,

unallowed losses) allocable to the

did not dispose of your entire interest in

or exchange interests in a timeframe

activity for the year are not limited by

the PTP to an unrelated person in a

and with the regularity and continuity

the passive loss rules. A fully taxable

fully taxable transaction during the

that the existence of a market maker

transaction is one in which you

year), the losses are allowed only to the

would provide.

recognize all your realized gain or loss.

extent of the income, and the excess

Report the income and losses on the

Special Instructions for PTPs

loss is carried forward to use in a future

forms and schedules normally used.

year if you have income to offset it.

Section 469(k) provides that the

Note: For rules on the disposition of an

Report as a passive loss on the

passive activity limitations must be

entire interest reported using the

schedule or form you normally use the

applied separately to items from each

installment method, see Disposition of

portion of the loss equal to the income.

PTP. PALs from a PTP generally may

an Entire Interest on page 6.

Report the income as passive income

be used only to offset income or gain

on the form or schedule you normally

from passive activities of the same

use.

Paperwork Reduction Act Notice.

PTP. The special allowance (including

We ask for the information on this form

CRDs) for rental real estate activities

Example. You have a Schedule E

to carry out the Internal Revenue laws

does not apply to PALs from a PTP.

loss of $12,000 (current year losses

of the United States. You are required

plus prior year unallowed losses) and

Passive activity loss rules for

to give us the information. We need it to

Form 4797 gain of $7,200 from the

partners in PTPs. Do not report

ensure that you are complying with

passive activities of a PTP. You report

passive income, gains, or losses from a

these laws and to allow us to figure and

the $7,200 gain on the appropriate line

PTP on Form 8582. Instead, use the

collect the right amount of tax.

of Form 4797. On Schedule E, Part II,

following rules to figure and report your

you report $7,200 of the losses as a

You are not required to provide the

income, gains, and losses from passive

passive loss in column (f). You carry

information requested on a form that is

activities you held through each PTP

forward to 2004 the unallowed loss of

subject to the Paperwork Reduction Act

you owned during the tax year.

$4,800 ($12,000 − $7,200).

unless the form displays a valid OMB

1. Combine any current year

control number. Books or records

If you have unallowed losses from

income, gains and losses, and any prior

relating to a form or its instructions

more than one activity of the PTP or

year unallowed losses to see if you

must be retained as long as their

from the same activity of the PTP that

have an overall loss from the PTP.

contents may become material in the

must be reported on different forms or

Include only the same types of income

administration of any Internal Revenue

schedules, allocate the unallowed

and losses you would include to figure

law. Generally, tax returns and return

losses on a pro rata basis to figure the

your net income or loss from a

information are confidential, as required

amount allowed for each activity or on

non-PTP passive activity. See Passive

by section 6103.

each form or schedule.

Activity Income and Deductions on

The time needed to complete and

page 5.

To allocate and keep a record of

file this form will vary depending on

2. If you have an overall gain, the

TIP

the unallowed losses, use

individual circumstances. The

net gain portion (total gain minus total

Worksheets 5, 6, and 7 of Form

estimated average time is:

losses) is nonpassive income.

8582.

It is important to figure the

Recordkeeping . . . . . . . . 1 hr., 25 min.

List each activity of the PTP in

nonpassive income because it must be

Worksheet 5. Enter the overall loss

included in modified adjusted gross

Learning about the law or

from each activity in column (a).

income to figure the special allowance

the form . . . . . . . . . . . . . 1 hr., 43 min.

Complete column (b) of Worksheet 5

for active participation in a non-PTP

Preparing the form . . . . . 1 hr., 45 min.

according to its instructions. Multiply the

rental real estate activity on Form 8582.

total unallowed loss from the PTP by

Also, you may be able to include the

Copying, assembling,

each ratio in column (b) and enter the

nonpassive income in investment

and sending the form to

result in column (c) of Worksheet 5.

income when figuring your investment

the IRS . . . . . . . . . . . . . .

20 min.

interest expense deduction. See Form

Next, complete Worksheet 6 for

If you have comments concerning

4952, Investment Interest Expense

each activity listed in Worksheet 5 if all

the accuracy of these time estimates or

Deduction.

the loss from that activity is reported on

suggestions for making this form

one form or schedule. Use Worksheet 7

Report all gains and allowed losses

simpler, we would be happy to hear

instead of Worksheet 6 for each activity

from the activity on the forms or

from you. See the instructions for the

with losses reported on two or more

schedules normally used, and to the left

tax return with which this form is filed.

different forms or schedules (or on

of each entry space, enter “From PTP.”

different parts of the same form or

Example. You have Schedule E

schedule). Enter the net loss plus any

income of $8,000 and a Form 4797

-12-

Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 12

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