Instructions For Form 8582 - Passive Activity Loss Limitations

Modified adjusted gross income

during that period, based on

individual was compensated for the

limitation. If your modified adjusted

appointment books, calendars, or

management services).

gross income (defined on page 8) is

narrative summaries.

Test for a spouse. Participation by

$100,000 or less ($50,000 or less if

Tests for individuals. You materially

your spouse during the tax year in an

married filing separately), your loss is

participated for the tax year in an

activity you own may be counted as

deductible up to the amount of the

activity if you satisfy at least one of the

your participation in the activity even if

maximum special allowance referred to

your spouse did not own an interest in

following tests.

in the preceding paragraph.

the activity and whether or not you and

1. You participated in the activity for

If your modified adjusted gross

your spouse file a joint return for the tax

more than 500 hours.

income is more than $100,000 ($50,000

year.

if married filing separately) but less than

2. Your participation in the activity

Tests for investors. Work done as an

$150,000 ($75,000 if married filing

for the tax year was substantially all of

investor in an activity is not treated as

separately), your special allowance is

the participation in the activity of all

participation unless you were directly

limited to 50% of the difference

individuals (including individuals who

involved in the day-to-day management

between $150,000 ($75,000 if married

did not own any interest in the activity)

or operations of the activity. For

filing separately) and your modified

for the year.

purposes of this test, work done as an

adjusted gross income.

3. You participated in the activity for

investor includes:

more than 100 hours during the tax

Generally, if your modified adjusted

1. Studying and reviewing financial

gross income is $150,000 or more

year, and you participated at least as

statements or reports on operations of

($75,000 or more if married filing

much as any other individual (including

the activity.

individuals who did not own any interest

separately), there is no special

2. Preparing or compiling

allowance.

in the activity) for the year.

summaries or analyses of the finances

4. The activity is a significant

If you qualify under the active

or operations of the activity for your

participation activity for the tax year,

participation rules, use Worksheet 1

own use.

and you participated in all significant

and see page 7 of the instructions.

3. Monitoring the finances or

participation activities during the year

Commercial revitalization deduction

operations of the activity in a

for more than 500 hours.

(CRD). The special $25,000 allowance

nonmanagerial capacity.

A significant participation activity is

for the CRD from rental real estate

any trade or business activity in which

activities is not subject to the active

Special rules for limited partners. If

you participated for more than 100

participation rules or modified adjusted

you were a limited partner in an activity,

hours during the year and in which you

gross income limits discussed above.

you generally did not materially

did not materially participate under any

The $25,000 allowance must first be

participate in the activity. You did

of the material participation tests (other

applied to losses from rental real estate

materially participate in the activity,

than this fourth test).

activities with active participation,

however, if you met material

figured without regard to the CRD (see

5. You materially participated in the

participation test 1, 5, or 6 (see Tests

Part II). Any remaining portion of the

activity for any 5 (whether or not

for individuals on this page) for the tax

$25,000 allowance is available for the

consecutive) of the 10 immediately

year.

CRD from rental real estate activities

preceding tax years.

However, for purposes of the

(see Part III). See the instructions for

6. The activity is a personal

material participation tests, you are not

Worksheet 2 on page 8. For general

service activity in which you materially

treated as a limited partner if you also

information about the CRD, see Pub.

participated for any 3 (whether or not

were a general partner in the

954, Tax Incentives for Distressed

consecutive) preceding tax years.

partnership at all times during the

Communities, and section 1400I.

An activity is a personal service

partnership’s tax year ending with or

activity if it involves the performance of

within your tax year (or, if shorter,

Material Participation

personal services in the fields of health,

during the portion of the partnership’s

For the material participation tests listed

law, engineering, architecture,

tax year in which you directly or

below, participation generally includes

accounting, actuarial science,

indirectly owned your limited partner

any work done in connection with an

performing arts, consulting, or in any

interest).

activity if you owned an interest in the

other trade or business in which capital

A limited partner’s share of an

activity at the time you did the work.

is not a material income-producing

electing large partnership’s taxable

The capacity in which you did the work

factor.

income or loss from all trade or

does not matter. However, work is not

7. Based on all the facts and

business and rental activities is treated

participation if:

circumstances, you participated in the

•

as income or loss from the conduct of a

It is not work that an owner would

activity on a regular, continuous, and

single passive trade or business

customarily do in the same type of

substantial basis during the tax year.

activity.

activity and

You did not materially participate in

•

Special rules for certain retired or

One of your main reasons for doing

the activity under this seventh test,

disabled farmers and surviving

the work was to avoid the disallowance

however, if you participated in the

spouses of farmers. Certain retired or

of losses or credits from the activity

activity for 100 hours or less during the

disabled farmers and surviving spouses

under the passive activity rules.

tax year.

of farmers are treated as materially

Proof of participation. You may prove

Your participation in managing the

participating in a farming activity if the

your participation in an activity by any

activity does not count in determining

real property used in the activity would

reasonable means. You do not have to

whether you materially participated

meet the estate tax rules for special

maintain contemporaneous daily time

under this test if:

valuation of farm property passed from

reports, logs, or similar documents if

a qualifying decedent. See Temporary

a. Any person (except you) received

you can establish your participation by

Regulations section 1.469-5T(h)(2).

compensation for performing services

other reasonable means. For this

in the management of the activity or

purpose, reasonable means include,

Estates and trusts. The PAL

b. Any individual spent more hours

but are not limited to, identifying

limitations apply in figuring the

services performed over a period of

during the tax year performing services

distributable net income and taxable

time and the approximate number of

in the management of the activity than

income of an estate or trust. See

you did (regardless of whether the

hours spent performing the services

Temporary Regulations section

-4-

Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 4

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