Instructions For Form 8582 - Passive Activity Loss Limitations

Activities, and Dispositions (pages 5

If you are married filing jointly, one

However, if you meet any of the five

through 7).

spouse must separately meet both of

exceptions beginning below, the rental

the above conditions, without taking

of the property is not treated as a rental

To find out how to enter income and

into account services performed by the

activity. See Reporting Income and

losses on Form 8582, read the

other spouse.

Losses From the Activities on page 3

instructions for Worksheets 1, 2, and 3

if you meet any of the exceptions.

A real property trade or business is

(beginning on page 7).

any real property development,

An activity is a rental activity if

Definitions

redevelopment, construction,

tangible property (real or personal) is

reconstruction, acquisition, conversion,

used by customers or held for use by

Except as otherwise indicated, the

rental, operation, management, leasing,

customers and the gross income (or

following terms in these instructions are

or brokerage trade or business.

expected gross income) from the

defined as shown below.

activity represents amounts paid (or to

Services you performed as an

Net income means the excess of

be paid) mainly for the use of the

employee are not treated as performed

current year income over current year

property. It does not matter whether the

in a real property trade or business

deductions from the activity. This

use is under a lease, a service contract,

unless you owned more than 5% of the

includes any current year gains or

or some other arrangement.

stock (or more than 5% of the capital or

losses from the disposition of assets or

profits interest) in the employer.

Exceptions

an interest in the activity.

Note: If a rental real estate activity is

Net loss means the excess of current

An activity is not a rental activity if:

not a passive activity for the current

year deductions over current year

1. The average period of

year, any prior year unallowed loss is

income from the activity. This includes

customer use is:

treated as a loss from a former passive

any current year gains or losses from

activity. See Former Passive

a. 7 days or less or

the disposition of assets or an interest

Activities on page 6.

b. 30 days or less and significant

in the activity.

personal services were provided in

3. A working interest in an oil or gas

Overall gain means the excess of the

making the rental property available for

well. Your working interest must be held

“net income” from the activity over the

customer use.

directly or through an entity that does

prior year unallowed losses from the

Figure the average period of

not limit your liability (such as a general

activity.

customer use for a class of property by

partner interest in a partnership). In this

Overall loss means (a) the excess of

dividing the total number of days in all

case, it does not matter whether you

the prior year unallowed losses from

rental periods by the number of rentals

materially participated in the activity for

the activity over the “net income” from

during the tax year. If the activity

the tax year.

the activity or (b) the prior year

involves renting more than one class of

If, however, your liability was limited

unallowed losses from the activity plus

property, multiply the average period of

for part of the year (for example, you

the “net loss” from the activity.

customer use of each class by the ratio

converted your general partner interest

of the gross rental income from that

Prior year unallowed losses means

to a limited partner interest during the

class to the activity’s total gross rental

the losses from an activity that were

year), some of your income and losses

income. The activity’s average period of

disallowed under the PAL limitations in

from the working interest may be

customer use equals the sum of these

a prior year and carried forward to the

treated as passive activity gross income

class-by-class average periods

tax year under section 469(b). See

and passive activity deductions. See

weighted by gross income. See

Regulations section 1.469-1(f)(4) and

Temporary Regulations section

Regulations section 1.469-1(e)(3)(iii).

Pub. 925.

1.469-1T(e)(4)(ii).

Significant personal services include

4. The rental of a dwelling unit you

Activities That Are Not

only services performed by individuals.

used as a residence if section

To determine if personal services are

280A(c)(5) applies. This section applies

Passive Activities

significant, all relevant facts and

if you rented out a dwelling unit that you

The following are not passive activities.

circumstances are taken into

also used as a home during the year for

consideration, including the frequency

a number of days that exceeds the

1. Trade or business activities in

of the services, the type and amount of

greater of 14 days or 10% of the

which you materially participated for the

labor required to perform the services,

number of days during the year that the

tax year.

and the value of the services relative to

home was rented at a fair rental.

2. Any rental real estate activity in

the amount charged for use of the

5. An activity of trading personal

which you materially participated if you

property.

property for the account of owners of

were a “real estate professional” for the

2. Extraordinary personal

interests in the activity. For purposes of

tax year. You were a real estate

services were provided in making the

this rule, personal property means

professional only if:

rental property available for customer

property that is actively traded, such as

a. More than half of the personal

use. This applies only if the services

stocks, bonds, and other securities.

services you performed in trades or

are performed by individuals and the

See Temporary Regulations section

businesses during the tax year were

customers’ use of the property is

1.469-1T(e)(6) for more details.

performed in real property trades or

incidental to their receipt of the

businesses in which you materially

Generally, income and losses from

services.

participated and

these activities are not entered on Form

3. Rental of the property is

b. You performed more than 750

8582. However, losses from these

incidental to a nonrental activity.

hours of services during the tax year in

activities may be subject to limitations

The rental of property is incidental to

real property trades or businesses in

other than the passive loss rules.

an activity of holding property for

which you materially participated.

investment if the main purpose of

For purposes of this rule, each

Rental Activities

holding the property is to realize a gain

interest in rental real estate is a

from its appreciation and the gross

separate activity, unless you elect to

A rental activity is a passive activity

rental income is less than 2% of the

treat all interests in rental real estate as

even if you materially participated in the

smaller of the unadjusted basis or the

one activity. For details on making this

activity (unless it is a rental real estate

fair market value (FMV) of the property.

election, see page E-1 of the

activity in which you materially

instructions for Schedule E (Form

participated and you were a real estate

Unadjusted basis is the cost of the

1040).

professional).

property without regard to depreciation

-2-

Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 2

Related Articles

Related forms

Related Categories