Instructions For Form 8582 - Passive Activity Loss Limitations

1.469-1T(b)(2) and (3). The rules for

property used in the trade or business

The partnership or S corporation

determining material participation for

activity may be grouped with the trade

does not have a record of any

this purpose have not yet been issued.

or business activity.

prior year unallowed losses from

CAUTION

2. An activity involving the rental of

the passive activities of the partnership

Grouping of Activities

real property with an activity involving

or S corporation. If you had prior year

the rental of personal property (except

unallowed losses from these activities,

Generally, one or more trade or

personal property provided in

they can be found in column (c) of your

business activities or rental activities

connection with the real property or vice

2002 Worksheet 5.

may be treated as a single activity if the

versa).

activities make up an appropriate

Self-Charged Interest

3. Any activity with another activity

economic unit for the measurement of

in a different type of business and in

Certain self-charged interest income or

gain or loss under the passive activity

which you hold an interest as a limited

deductions may be treated as passive

rules.

partner or as a limited entrepreneur (as

activity gross income or passive activity

Whether activities make up an

defined in section 464(e)(2)) if that

deductions if the loan proceeds are

appropriate economic unit depends on

other activity engages in holding,

used in a passive activity. Generally,

all the relevant facts and

producing, or distributing motion picture

self-charged interest income and

circumstances. The factors given the

films or videotapes; farming; leasing

deductions result from loans between

greatest weight in determining whether

section 1245 property; or exploring for

you and a partnership or S corporation

activities make up an appropriate

or exploiting oil and gas resources or

in which you had a direct or indirect

economic unit are:

geothermal deposits.

ownership interest. This includes both

loans you made to the partnership or

1. Similarities and differences in

Activities conducted through

S corporation and loans the partnership

types of trades or businesses,

partnerships, S corporations, and C

or S corporation made to you. It also

2. The extent of common control,

corporations subject to section 469.

includes loans from one partnership or

3. The extent of common

Once a partnership or corporation

S corporation to another partnership or

ownership,

determines its activities under these

S corporation if each owner in the

4. Geographical location, and

rules, a partner or shareholder may use

borrowing entity has the same

5. Interdependencies between or

these rules to group those activities

proportional ownership interest in the

among the activities.

with:

lending entity. The self-charged interest

•

Each other,

Example. You have a significant

rules do not apply to your interest in a

•

Activities conducted directly by the

ownership interest in a bakery and a

partnership or S corporation if the entity

partner or shareholder, or

movie theater in Baltimore and in a

made an election under Regulations

•

Activities conducted through other

bakery and a movie theater in

section 1.469-7(g) to avoid the

partnerships and corporations.

Philadelphia. Depending on all the

application of these rules. For more

relevant facts and circumstances, there

details on the self-charged interest

A partner or shareholder may not

may be more than one reasonable

rules, see Regulations section 1.469-7.

treat as separate activities those

method for grouping your activities. For

activities grouped together by the

Passive Activity Income

instance, the following groupings may

partnership or corporation.

or may not be permissible:

To figure your overall gain or loss from

•

A single activity,

all passive activities or any passive

Passive Activity Income

•

A movie theater activity and a bakery

activity, take into account only passive

activity,

activity income. Do not enter income

and Deductions

•

A Baltimore activity and a

that is not passive activity income on

Take into account only passive activity

Philadelphia activity, or

Form 8582 or the worksheets.

•

income and passive activity deductions

Four separate activities.

Passive activity income includes all

to figure your net income or net loss

income from passive activities,

Once you choose a grouping under

from all passive activities or any

including (with certain exceptions

these rules, you must continue using

passive activity.

described in Temporary Regulations

that grouping in later tax years unless a

If your passive activity is reported on

section 1.469-2T(c)(2) and Regulations

material change in the facts and

Schedule C, C-EZ, E, or F, and the

section 1.469-2(c)(2)) gain from the

circumstances makes it clearly

activity has no prior year unallowed

disposition of an interest in a passive

inappropriate.

losses or any gain or loss from the

activity or of property used in a passive

The IRS may regroup your activities

disposition of assets or an interest in

activity at the time of the disposition.

if your grouping fails to reflect one or

the activity, take into account only the

Passive activity income does not

more appropriate economic units and

passive activity income and passive

include the following.

one of the primary purposes of your

activity deductions from the activity to

•

Income from an activity that is not a

grouping is to avoid the passive activity

figure the amount to enter on Form

passive activity.

limitations.

8582 and the worksheets.

•

Portfolio income, including interest

Limitation on grouping certain

If you own an interest in a passive

(other than self-charged interest treated

activities. The following activities may

activity through a partnership or an

as passive activity income), dividends,

not be grouped together.

S corporation, the partnership or

annuities, and royalties not derived in

1. A rental activity with a trade or

S corporation will generally provide you

the ordinary course of a trade or

business activity unless the activities

with the net income or net loss from the

business, and gain or loss from the

being grouped together make up an

passive activity. If, however, the

disposition of property that produces

appropriate economic unit and:

partnership or S corporation must state

portfolio income or is held for

a. The rental activity is insubstantial

an item of gross income or deduction

investment (see section 163(d)(5)). See

relative to the trade or business activity

separately to you, and the gross

Temporary Regulations section

or vice versa or

income or deduction is passive activity

1.469-2T(c)(3).

•

b. Each owner of the trade or

gross income or a passive activity

Alaska Permanent Fund dividends.

•

business activity has the same

deduction (respectively), include that

Personal service income, including

proportionate ownership interest in the

amount in the net income or net loss

salaries, wages, commissions,

rental activity. If so, the portion of the

entered on Form 8582 and the

self-employment income from trade or

rental activity involving the rental of

worksheets.

business activities in which you

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Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 5

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