Instructions For Form 8582 - Passive Activity Loss Limitations

2006

Department of the Treasury

Internal Revenue Service

Instructions for Form 8582

Passive Activity Loss Limitations

net losses (including any prior year

If all the above conditions are met,

Section references are to the Internal

Revenue Code unless otherwise noted.

unallowed losses) from business or

your rental real estate losses are not

rental passive activities. Overall loss is

limited, and you do not need to

General Instructions

defined under Definitions on page 2.

complete Form 8582. Enter losses

reported on Schedule E (Form 1040),

In figuring your overall gain or loss

Purpose of Form

Part I, line 22, on Schedule E, line 23.

from all passive activities for the year,

For losses from a partnership or an S

Form 8582 is used by noncorporate

do not include the following income or

corporation, enter the amount of the

taxpayers to figure the amount of any

losses.

allowable loss from Schedule K-1 in

passive activity loss (PAL) for the

1. Net income that is not passive

Schedule E, Part II, column (f). Enter

current tax year.

activity income. See Passive Activity

losses reported on line 32 of Form

Income beginning on page 5.

A PAL occurs when total losses

4835, Farm Rental Income and

2. Net losses that are not passive

(including prior year unallowed losses)

Expenses, on Form 4835, line 33c.

activity net losses. See Activities That

from all your passive activities exceed

Are Not Passive Activities on page 2.

the total income from all your passive

Coordination With Other

activities.

3. Net income or net loss from your

interest in any publicly traded

Limitations

Generally, passive activities include:

partnership (PTP). See Publicly Traded

•

Trade or business activities in which

Generally, PALs are subject to other

Partnerships (PTPs) beginning on

you did not materially participate for the

limitations (for example, basis and

page 11.

tax year.

at-risk limitations) before they are

•

4. Any overall loss from an entire

Rental activities, regardless of your

subject to the passive loss limitations.

disposition of a passive activity. See

participation.

Once a loss becomes allowable under

Dispositions beginning on page 6 for

these other limitations, you must

PALs cannot be used to offset

more information.

determine whether the loss is limited

income from nonpassive activities.

under the passive loss rules. See Form

However, a special allowance for rental

Exception 2

6198, At-Risk Limitations, for details on

real estate activities may allow some

the at-risk rules. Also, capital losses

losses even if the losses exceed

You actively participated in rental real

that are allowable under the passive

passive income.

estate activities (see Special Allowance

loss rules may be limited under the

for Rental Real Estate Activities on

PALs not allowed in the current year

capital loss limitations of section 1211.

page 3), and you meet all of the

are carried forward until they are

Percentage depletion deductions that

following conditions.

allowed either against passive activity

•

are allowable under the passive loss

Rental real estate activities with

income, against the special allowance,

rules may be limited under section

active participation were your only

if applicable, or when you sell or

613A(d).

passive activities.

exchange your entire interest in the

•

You have no prior year unallowed

activity in a fully taxable transaction to

losses from these activities.

Before Completing Form

an unrelated party.

•

Your total loss from the rental real

8582

For more information, see Pub. 925,

estate activities was not more than

Passive Activity and At-Risk Rules,

$25,000 ($12,500 if married filing

To find out if your activity is treated as a

which contains a filled-in example of

separately and you lived apart from

passive activity, read the following

Form 8582 with step-by-step

your spouse all year).

sections of these instructions.

•

instructions for reporting losses from

•

If you are married filing separately,

Trade or Business Activities if your

passive activities.

you lived apart from your spouse all

activity is a trade or business activity

year.

Note. Corporations subject to the

(page 3).

•

You have no current or prior year

passive activity rules must use Form

Rental Activities if your activity is the

unallowed credits from a passive

8810, Corporate Passive Activity Loss

renting of tangible property (beginning

activity.

and Credit Limitations.

on page 2).

•

Your modified adjusted gross income

•

Material Participation (page 4).

was not more than $100,000 (not more

Who Must File

•

Grouping of Activities (page 5).

than $50,000 if married filing separately

Form 8582 is filed by individuals,

To find out how to treat income and

and you lived apart from your spouse

estates, and trusts who have losses

deductions from your activity, read

all year).

(including prior year unallowed losses)

•

Passive Activity Income and

You do not hold any interest in a

from passive activities. You do not have

Deductions, Former Passive Activities,

rental real estate activity as a limited

to file Form 8582 if you meet Exception

and Dispositions (pages 5 through 7).

partner or as a beneficiary of an estate

1 or 2 below.

or a trust.

To find out how to enter income and

Exception 1

For the definition of modified

losses on Form 8582, read the

instructions for Worksheets 1, 2, and 3

You do not have an overall loss when

adjusted gross income, see the

you combine all your net income and

instructions for line 7 on page 8.

(beginning on page 7).

Cat. No. 64294A

Instructions For Form 8582 - Passive Activity Loss Limitations - 2006

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