Instructions For Form 8582 - Passive Activity Loss Limitations

Example 2. Activity with overall

Reporting an Entire

Worksheet 1

loss. You sell your entire interest in an

Disposition on Schedule D or

Individuals and qualifying estates who

oil and gas limited partnership that was

actively participated in rental real estate

Form 4797

your only passive activity for a gain of

activities must include the income or

$2,000. You have a current year

If you completely dispose of your entire

loss from those activities in Worksheet

Schedule E loss of $3,330 and a

interest in a passive activity or a former

1 to figure the amounts to enter on lines

Schedule E prior year unallowed loss of

passive activity, you may have to report

1a through 1c of Form 8582. Do not

$1,115.

net income or loss and prior year

include any commercial revitalization

unallowed losses from the activity. All

Because you have an overall loss of

deductions (CRDs) from these activities

the net income and losses are reported

$2,445 after combining the gain and

in the net income or loss reported in

on the forms and schedules normally

losses, none of the amounts are

Worksheet 1.

used.

entered on Worksheet 3 or on Form

Note: Do not enter a prior year

8582.

Combine all income and losses

unallowed loss in column (c) of

(including any prior year unallowed

You enter the net loss plus the prior

Worksheet 1 unless you actively

losses) from the activity for the tax year

year unallowed loss ($3,330 + $1,115 =

participated in the activity in both the

to see if you have an overall gain or

$4,445) on Schedule E, Part II, column

year the loss arose and the current tax

loss.

(h), and the $2,000 gain on the sale on

year. If you did not actively participate

Schedule D, in either Part I or Part II,

If you have an overall gain from a

in both years, enter the prior year

depending on how long you held the

passive activity and you have other

unallowed loss in column (c) of

partnership interest.

passive activities to report on Form

Worksheet 3.

8582, include the income, losses, and

Disposition of Less Than an

Married individuals who file

prior year unallowed losses on

separate returns and lived with

Entire Interest

Worksheet 1, 2, or 3.

their spouses at any time during

CAUTION

Gains and losses from the disposition

If this is your only passive activity or

the tax year do not qualify under the

of less than an entire interest in an

a former passive activity, report all

active participation rule and must use

activity are treated as part of the net

income and losses (including any prior

Worksheet 3 instead of Worksheet 1.

income or net loss from the activity for

year unallowed losses) on the forms

the current year.

Column (a). Enter the current year net

and schedules normally used and do

income from each activity. Enter the

not use Form 8582.

Note: A disposition of less than

total of column (a) on line 1a of Form

substantially all of an entire interest

If you have an overall loss when

8582.

does not trigger the allowance of prior

you combine the income and losses, do

year unallowed losses.

not use the worksheets or Form 8582

Example. A Schedule E rental

for the activity. All losses (including

activity has current year profit of $5,000

Disposition of substantially all of an

prior year unallowed losses) are

and a Form 4797 gain of $2,000. You

activity. You may treat the disposition

allowed in full. Report the income and

enter $7,000 in column (a).

of substantially all of an activity as a

losses on the forms and schedules

separate activity if you can prove with

Column (b). Enter the current year net

normally used.

reasonable certainty:

loss for each activity. Do not enter any

1. The prior year unallowed losses,

An overall loss from an entire

prior year unallowed losses in this

if any, allocable to the part of the

disposition of a passive activity is a

column. Enter the total of column (b) on

activity disposed of and

nonpassive loss if you have an

line 1b of Form 8582.

2. The net income or loss for the

aggregate loss from all other passive

year of disposition allocable to the part

activities. When figuring your modified

If an activity has net income on one

of the activity disposed of.

adjusted gross income for line 7 of

form or schedule and a net loss on

Form 8582, be sure to take into

another form or schedule, report the net

account the overall loss from the

amounts separately in columns (a) and

disposition of the activity.

(b) of Worksheet 1.

Specific Instructions

Example 1. Activity with overall

Example. A Schedule E rental

gain. You sell your entire interest in a

activity has current year income of

Part I—2003 Passive

rental real estate activity in which you

$1,000 on line 22 of Schedule E and a

actively participated for a gain of

current year Form 4797 loss of $4,500.

Activity Loss

$15,525. $7,300 of the gain is section

You enter $1,000 in column (a) and

1231 gain reported on Form 4797,

Use Part I to combine the net income

($4,500) in column (b).

Part I, and $8,225 is ordinary recapture

and net loss from all passive activities

Column (c). Enter the prior year

income reported on Form 4797, Part II.

to determine if you have a passive

unallowed losses for each activity. You

On line 23 of Schedule E (Form 1040),

activity loss (PAL) for 2003. Use

find these amounts on Worksheet 5,

you report a total loss of $15,450,

Worksheets 1, 2, and 3 to determine

column (c), of your 2002 Form 8582.

which includes a current year $2,800

the entries for lines 1 – 3 of Part I, as

Enter the total of column (c) from your

net loss and a $12,650 prior year

follows.

•

2003 Worksheet 1 on line 1c of Form

unallowed loss. You have an overall

Worksheet 1 is used for rental real

8582.

gain from the disposition ($15,525 –

estate activities with active

$15,450 = $75).

participation.

Columns (d) and (e). Combine income

•

Worksheet 2 is used for commercial

and losses in columns (a) through (c)

Because you had other passive

revitalization deductions (CRDs) from

for each activity, and either enter the

activities reportable on Form 8582, you

rental real estate activities (with or

overall gain for the activity in column (d)

make the following entries on

without active participation).

or enter the overall loss for the activity

Worksheet 1. You enter the $15,525

•

Worksheet 3 is used for all other

in column (e). Do not enter amounts

gain on the disposition in column (a),

passive activities.

from columns (d) and (e) on Form

the current year loss of $2,800 in

8582. These amounts will be used

column (b), and the prior year

Note: See Pub. 925 for examples

when Form 8582 is completed to figure

unallowed loss of $12,650 in column

showing how to complete the

the loss allowed for the current year.

(c).

worksheets.

-7-

Instructions For Form 8582 - Passive Activity Loss Limitations - 2003 Page 7

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