Instructions For Form 8582 - Department Of The Treasury

used by customers or held for use by

Unadjusted basis is the cost of the

materially participate, enter the

customers and the gross income (or

property without regard to

income and losses from the activity

expected gross income) from the

depreciation deductions or any other

on Worksheet 2.

•

basis adjustment described in section

If the activity meets any of the five

activity represents amounts paid (or

to be paid) mainly for the use of the

1016.

exceptions listed above and is a trade

or business activity in which you did

property. It does not matter whether

The rental of property is incidental

materially participate, report any

the use is under a lease, a service

to a trade or business activity if:

income or loss from the activity on the

contract, or some other arrangement.

a. You owned an interest in the

forms or schedules normally used.

trade or business activity during the

Exceptions

If the rental activity did not meet

tax year;

any of the five exceptions, it is

An activity is not a rental activity if:

b. The rental property was mainly

generally a passive activity. Special

used in the trade or business activity

1. The average period of

rules apply if you conduct the rental

during the tax year or during at least

customer use is:

activity through a PTP or if any of the

2 of the 5 preceding tax years; and

a. 7 days or less or

rules described under

c. The gross rental income from

b. 30 days or less and significant

Recharacterization of Passive

the property is less than 2% of the

personal services (see below) were

Income on page 6 apply. See the

smaller of the unadjusted basis or the

provided in making the rental property

PTP rules on page 11.

FMV of the property.

available for customer use.

If none of the special rules apply,

Lodging provided for the

Figure the average period of

enter the passive rental activity on

employer’s convenience to an

customer use for a class of property

Worksheet 1 or 2.

employee or the employee’s spouse

by dividing the total number of days in

or dependents is incidental to the

Worksheet 1 is for passive rental

all rental periods by the number of

activity or activities in which the

real estate activities in which you

rentals during the tax year. If the

employee performs services.

actively participated. See Active

activity involves renting more than

4. You customarily make the

Participation in a Rental Real

one class of property, multiply the

rental property available during

Estate Activity below.

average period of customer use of

defined business hours for

Worksheet 2 is for passive rental

each class by the ratio of the gross

nonexclusive use by various

real estate activities in which you did

rental income from that class to the

customers.

not actively participate, activities of

activity’s total gross rental income.

5. You provide property for use in

renting personal property, and other

The activity’s average period of

a nonrental activity of a partnership, S

passive trade or business activities.

customer use equals the sum of

corporation, or a joint venture in your

these class-by-class average periods

See the instructions for

capacity as an owner of an interest in

weighted by gross income. See

Worksheets 1 and 2 on page 8.

the partnership, S corporation, or joint

Regulations section 1.469-1(e)(3)(iii).

venture.

Trade or Business

Significant personal services

Example. If a partner

include only services performed by

Activities

contributes the use of property to a

individuals. To determine if personal

partnership, none of the partner’s

A trade or business activity is an

services are significant, all relevant

distributive share of partnership

activity (other than a rental activity or

facts and circumstances are taken

income is income from a rental

an activity treated as incidental to an

into consideration, including the

activity unless the partnership is

activity of holding property for

frequency of the services, the type

engaged in a rental activity.

investment) that:

and amount of labor required to

Also, a partner’s gross income

perform the services, and the value of

1. Involves the conduct of a trade

from a guaranteed payment under

the services relative to the amount

or business (within the meaning of

section 707(c) is not income from a

charged for use of the property.

section 162),

rental activity. The determination of

2. Is conducted in anticipation of

2. Extraordinary personal

whether the property used in the

starting a trade or business, or

services were provided in making the

activity is provided in the partner’s

3. Involves research or

rental property available for customer

capacity as an owner of an interest in

experimental expenditures deductible

use.

the partnership is made on the basis

under section 174 (or that would be if

Extraordinary personal services

of all the facts and circumstances.

you chose to deduct rather than

are services provided in making

capitalize them).

rental property available for customer

Reporting Income and

use only if they are performed by

Trade or business activities are

Losses From the Activities

individuals and the customers’ use of

generally reported on Schedule C,

If an activity meets any of the five

the property is incidental to their

C-EZ, or F, or in Part II or III of

exceptions listed above, it is not a

receipt of the services.

Schedule E. See Publicly Traded

rental activity. You must then

3. Rental of the property is

Partnerships (PTPs) on page 11.

determine:

incidental to a nonrental activity.

See Pub. 925 for how to report

1. Whether your rental of the

income or losses from significant

The rental of property is incidental

property is a trade or business activity

participation passive activities.

to an activity of holding property for

(see Trade or Business Activities

investment if the main purpose of

Active Participation in a

below) and, if so,

holding the property is to realize a

2. Whether you materially

Rental Real Estate Activity

gain from its appreciation and the

participated in the activity for the tax

gross rental income is less than 2%

If you actively participated in a

year.

of the smaller of the unadjusted

passive rental real estate activity, you

•

basis or the fair market value (FMV)

If the activity is a trade or business

may be able to deduct from

of the property.

activity in which you did not

nonpassive income up to $25,000 of

-3-

Instructions For Form 8582 - Department Of The Treasury - 2001 Page 3

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