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Part I—2002

corporation’s taxable income for the tax

taking into account an overall loss from

year, determined without regard to the

that activity only to the extent it exceeds

Passive Activity Loss

following items:

overall gain from all other passive

•

activities (the gain, if any, shown on line

(PAL)

Net passive income or loss.

•

1d of Form 8810).

Portfolio income. See Passive Activity

Lines 1d and 3. If line 1d or 3 shows net

Income on page 5.

•

income or zero, all the deductions and

If there is an overall loss from all other

Deductions attributable to portfolio

losses are allowed including any prior

passive activities (line 1d of Form 8810 is

income described in Temporary

year unallowed losses entered on line 1c.

a loss), figure net active income by taking

Regulations section 1.469-2T(d)(2)(i), (ii),

Enter the deductions on the appropriate

into account all of the overall loss from

and (iv).

lines of Form 1120 and any losses from

•

that activity.

Interest expense allocated under

Form 4797 or Schedule D (Form 1120) on

Temporary Regulations section 1.163-8T

Line 4 — Total deductions and losses

that form or schedule, if applicable,

to a portfolio expenditure (within the

allowed.

including any prior year unallowed losses

meaning of Temporary Regulations

•

that are properly entered on those forms.

Worksheet 2. Columns (d) and (e) of

section 1.163-8T(b)(6)).

Worksheet 2, on page 7, show whether

•

If the prior year unallowed losses

Gain on the disposition of substantially

an activity had an overall gain or loss.

include deductions that would have been

appreciated property formerly held for

reported on page 1 of Form 1120 instead

1. Column (d). A corporation with an

investment. See Regulations section

of on Form 4797 or Schedule D, include

overall gain in column (d) will report all of

1.469-2(c)(2)(iii)(F).

the prior year unallowed losses on the

•

the deductions and losses listed in

Gross income from certain oil or gas

appropriate line along with any current

Worksheet 1 and any prior year

properties treated under Regulations

year deduction or loss from that line.

unallowed losses in Worksheet 2 for

section 1.469-2(c)(6) as not from a

those activities on the appropriate lines of

Example. The corporation had $1,000

passive activity.

•

Form 1120 and on Schedule D or Form

of deductions for current year repairs and

Gross income and deductions from any

4797, if applicable.

maintenance and $500 of deductions for

trade or business activity of trading

2. Column (e). A corporation uses

prior year unallowed repairs and

certain personal property described in

Worksheets 3 and 4 for activities that

maintenance. Enter $1,500 as the

Temporary Regulations section

show an overall loss in column (e).

deduction for repairs and maintenance

1.469-1T(e)(6), but only if the corporation

•

allowed from passive activities on the

Worksheet 3, below, is used to figure

did not materially participate in the activity

proper line.

the unallowed deductions and losses to

for the tax year.

be carried forward to Worksheet 4, on

Line 2 — Closely held corporations.

If the corporation disposed of its

page 9. Use Worksheet 4 to figure the

Closely held corporations can offset the

entire interest in a passive activity to an

allowed deductions and losses to report

loss, if any, on line 1d with net active

unrelated party in a fully taxable

on the forms and schedules for 2002.

income. Net active income is the

transaction, figure net active income by

Worksheet 3

● If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to figure the unallowed

deductions and losses for each activity.

● If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses (including prior year

unallowed losses) for that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120 and enter any

losses on Form 4797 or Schedule D, if applicable.

● If there were prior year unallowed losses from 2001, include the prior year unallowed losses on the appropriate line along

with any current year deduction or loss for that line. See the example in the instructions for lines 1d and 3 above. Prior year

unallowed losses from Form 4797 and Schedule D (Form 1120) should have been kept separate in 2001, and should be

identified as “prior year unallowed losses” on Form 4797 and Schedule D (Form 1120).

Column (a). Enter the loss from column (e) of Worksheet 2.

Column (b). Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for

each of the activities in column (b). The total of all the ratios should equal 1.00.

Column (c). Multiply the unallowed loss from line 3 of Form 8810 by each of the ratios in column (b) and enter the results in

column (c).

● Use Worksheet 4 to figure the allowed deductions and losses.

Worksheet 3—Allocation of Unallowed Deductions and Losses

(a) Loss from

Name of activity

(b) Ratio

Worksheet 2 col. (e)

and losses

Totals

1.00

-8-

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2002 Page 8

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