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activities. See Temporary Regulations

Disposition of an Entire Interest

Reporting an Entire Disposition

section 1.469-2T(d)(7).

on Schedule D or Form 4797

If the corporation disposed of its entire

•

Deductions for losses from fire, storm,

interest in a passive activity or a former

When the corporation completely

shipwreck, or other casualty, or from theft,

passive activity to an unrelated party in a

disposes of an entire interest in a passive

if losses similar in cause and severity do

fully taxable transaction during the tax

activity or a former passive activity, there

not recur regularly in the activity.

year, the losses allocable to the activity

may be net income or loss and prior year

for the year are not limited by the PAL

Former Passive Activities

unallowed losses from the activity. All the

rules. A fully taxable transaction is a

income, gains, deductions, and losses are

A former passive activity is any activity

transaction in which all the realized gain

reported on the forms and schedules

that was a passive activity in a prior tax

or loss is recognized.

normally used.

year but is not a passive activity in the

current tax year. A prior year unallowed

If the corporation is using the

loss from a former passive activity is

Combine all income, gains,

installment method to report this kind of

allowed to the extent of current year

deductions, and losses (including any

disposition, figure the loss for the current

income from the activity.

prior year unallowed losses) from the

year that is not limited by the PAL rules

activity for the tax year to see if the

If the current year net income from the

by multiplying the corporation’s overall

activity is less than the prior year

corporation has an overall gain or loss.

loss (which does not include losses

unallowed loss, enter the prior year

unallowed loss and any current year net

allowed in prior years) by the following

If the corporation has an overall gain

income from the activity on Form 8810

fraction:

from a passive activity and also has other

and the applicable worksheets.

passive activities to report on Form 8810,

Gain recognized in the current year

If the current year net income from the

include the income, gains, deductions,

activity is more than or equal to the

Unrecognized gain as of the beginning

and losses (including prior year unallowed

prior year unallowed loss from the

of the current year

losses) on Worksheet 1 on page 7. If this

activity, report the income and loss on

is the corporation’s only passive activity

the forms and schedules normally used;

or a former passive activity, report the

Unallowed passive activity credits,

do not enter the amounts on Form 8810.

income, gains, deductions, and losses

unlike unallowed passive activity losses,

If the activity has a net loss for the

(including prior year unallowed losses) on

are not allowable when the corporation

current year, enter the prior year

the forms and schedules normally used,

disposes of its interest in an activity.

unallowed loss (but not the current year

but do not enter them on the worksheets

However, the corporation may elect to

loss) on Form 8810 and the applicable

or on Form 8810.

increase the basis of the credit property

worksheets.

by the amount of the original basis

To report a disposition of a former

If the corporation has an overall loss

reduction of the property to the extent that

passive activity, follow the rules under

when combining all income, gains,

the credit has not been allowed under the

Dispositions below.

deductions, and losses (including any

passive activity rules. Unallowed passive

prior year unallowed losses) from the

Dispositions

activity credits that are not used to

activity, report all of the income, gains,

increase the basis of the credit property

deductions, and losses on the forms and

Disposition of Less Than an

are carried forward until they are allowed.

schedules normally used, but do not enter

Entire Interest

To make the election, complete Part III of

them on the worksheets or on Form 8810.

Form 8810. No basis adjustment may be

Gains and losses from the disposition of

elected on a partial disposition of the

less than an entire interest in an activity

Note: Members of a consolidated group,

corporation’s interest in a passive activity.

are treated as part of the net income or

see Regulations section 1.469-1(h)(6)

net loss from the activity for the current

and Temporary Regulations sections

year.

A partner in a PTP is not treated as

1.469-1T(h)(7) and (8) for rules on

Note: A disposition of less than

having disposed of an entire interest in an

applying the passive loss rules to

substantially all of an entire interest does

activity of a PTP until there is an entire

dispositions of property and other

not trigger the allowance of prior year

disposition of the partner’s interest in the

intercompany transactions.

unallowed losses.

PTP.

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Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2002 Page 6

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