Instructions For Form 8582 - Passive Activity Loss Limitations

deductions or any other basis

passive activity. However, special rules

excess of income from passive

adjustment described in section 1016.

apply if you conduct the rental activity

activities.

through a PTP or if any of the rules

The rental of property is incidental to

The special allowance is not

described under Recharacterization of

a trade or business activity if:

available if you were married, are filing

Passive Income on page 6 apply. See

a. You own an interest in the trade

a separate return for the year, and lived

the PTP rules beginning on page 11.

or business activity during the tax year,

with your spouse at any time during the

If none of the special rules apply,

b. The rental property was mainly

year.

enter the income and losses from the

used in the trade or business activity

Only an individual, a qualifying

passive rental activity on Worksheet 1,

during the tax year or during at least 2

estate, or a qualified revocable trust

of the 5 preceding tax years, and

2, or 3.

that made an election to treat the trust

c. The gross rental income from the

Worksheet 1 is for passive rental

as part of the decedent’s estate may

property is less than 2% of the smaller

real estate activities in which you

actively participate in a rental real

of the unadjusted basis or the FMV of

actively participated. See Special

estate activity. Unless future regulations

the property.

Allowance for Rental Real Estate

provide an exception, limited partners

Lodging provided for the employer’s

Activities on this page.

are not treated as actively participating

convenience to an employee or the

in a partnership’s rental real estate

Worksheet 2 is for commercial

employee’s spouse or dependents is

activity.

revitalization deductions (CRDs) from

incidental to the activity or activities in

rental real estate activities. CRDs from

which the employee performs services.

A qualifying estate is the estate of a

rental real estate activities are not

4. You customarily make the rental

decedent for tax years ending less than

entered on Worksheet 1 or 3. See

property available during defined

2 years after the date of the decedent’s

Commercial revitalization deduction

business hours for nonexclusive use by

death if the decedent would have

(CRD) on page 4.

various customers.

satisfied the active participation

5. You provide property for use in a

requirements for the rental real estate

Worksheet 3 is for passive rental

nonrental activity of a partnership,

activity for the tax year the decedent

real estate activities in which you did

S corporation, or a joint venture in your

died.

not actively participate, activities of

capacity as an owner of an interest in

renting personal property, and other

A qualified revocable trust may elect

the partnership, S corporation, or joint

passive trade or business activities.

to be treated as part of a decedent’s

venture.

estate for purposes of the special

See the instructions for Worksheets

Example. If a partner contributes

allowance for active participation in

1, 2, and 3 beginning on page 7.

the use of property to a partnership,

rental real estate activities. The election

none of the partner’s distributive share

must be made by both the executor (if

Trade or Business

of partnership income is income from a

any) of the decedent’s estate and the

Activities

rental activity unless the partnership is

trustee of the revocable trust. For

engaged in a rental activity.

details, see Regulations section

A trade or business activity is an

1.645-1.

activity (other than a rental activity or

Also, a partner’s gross income from

an activity treated as incidental to an

You are not considered to actively

a guaranteed payment under section

activity of holding property for

participate in a rental real estate activity

707(c) is not income from a rental

investment) that:

if at any time during the tax year your

activity. The determination of whether

interest (including your spouse’s

1. Involves the conduct of a trade or

the property used in the activity is

interest) in the activity was less than

business (within the meaning of section

provided in the partner’s capacity as an

162),

10% (by value) of all interests in the

owner of an interest in the partnership

activity.

2. Is conducted in anticipation of

is made on the basis of all the facts and

starting a trade or business, or

circumstances.

Active participation is a less stringent

3. Involves research or experimental

requirement than material participation

expenditures deductible under section

Reporting Income and

(see Material Participation on page 4).

174 (or that would be if you chose to

Losses From the Activities

You may be treated as actively

deduct rather than capitalize them).

participating if, for example, you

If an activity meets any of the five

participated in making management

exceptions listed above, it is not a

Trade or business activities are

decisions or arranged for others to

rental activity. You must then

generally reported on Schedule C,

provide services (such as repairs) in a

determine:

C-EZ, or F, or in Part II or III of

significant and bona fide sense.

Schedule E. See Publicly Traded

1. Whether your rental of the

Management decisions that may count

Partnerships (PTPs) on page 11. For

property is a trade or business activity

as active participation include:

trade or business activities that are

(see Trade or Business Activities on

•

Approving new tenants,

significant participation passive

this page) and, if so,

•

Deciding on rental terms,

activities (defined on page 4), see Pub.

2. Whether you materially

•

Approving capital or repair

925 for how to report their income or

participated in the activity for the tax

expenditures, and

losses.

year (see Material Participation on

•

Other similar decisions.

page 4).

Special Allowance for

The maximum special allowance

•

If the activity is a trade or business

is:

activity in which you did not materially

Rental Real Estate

•

$25,000 for single individuals and

participate, enter the income and losses

married individuals filing a joint return

Activities

from the activity on Worksheet 3.

for the tax year.

•

If the activity is a trade or business

•

Active participation. If you actively

$12,500 for married individuals who

activity in which you did materially

participated in a passive rental real

file separate returns for the tax year

participate, report any income or loss

estate activity, you may be able to

and lived apart from their spouses at all

from the activity on the forms or

deduct up to $25,000 of loss from the

times during the tax year.

schedules normally used.

•

activity from your nonpassive income.

$25,000 for a qualifying estate

If the rental activity did not meet any

This special allowance is an exception

reduced by the special allowance for

of the five exceptions, it is generally a

to the general rule disallowing losses in

which the surviving spouse qualified.

-3-

Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 3

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