Instructions For Form 8582 - Passive Activity Loss Limitations

The rental of property is incidental to

through a PTP or if any of the rules

The special allowance is not

a trade or business activity if:

described under Recharacterization of

available if you were married, are filing

Passive Income on page 6 apply. See

a separate return for the year, and lived

a. You own an interest in the trade

the PTP rules on page 11.

with your spouse at any time during the

or business activity during the tax year,

year.

b. The rental property was mainly

If none of the special rules apply,

used in the trade or business activity

Only an individual, a qualifying

enter the income and losses from the

during the tax year or during at least 2

estate, or a qualified revocable trust

passive rental activity on Worksheet 1,

of the 5 preceding tax years, and

that made an election to treat the trust

2, or 3.

c. The gross rental income from the

as part of the decedent’s estate may

Worksheet 1 is for passive rental

property is less than 2% of the smaller

actively participate in a rental real

real estate activities in which you

of the unadjusted basis or the FMV of

estate activity. Unless future regulations

actively participated. See Special

the property.

provide an exception, limited partners

Allowance for Rental Real Estate

Lodging provided for the employer’s

are not treated as actively participating

Activities on this page.

convenience to an employee or the

in a partnership’s rental real estate

Worksheet 2 is for commercial

employee’s spouse or dependents is

activity.

revitalization deductions (CRDs) from

incidental to the activity or activities in

A qualifying estate is the estate of a

rental real estate activities. CRDs from

which the employee performs services.

decedent for tax years ending less than

rental real estate activities are not

4. You customarily make the rental

2 years after the date of the decedent’s

entered on Worksheet 1 or 3. See

property available during defined

death if the decedent would have

Commercial revitalization deduction

business hours for nonexclusive use by

satisfied the active participation

(CRD) on page 4.

various customers.

requirements for the rental real estate

5. You provide property for use in a

Worksheet 3 is for passive rental

activity for the tax year the decedent

nonrental activity of a partnership,

real estate activities in which you did

died.

S corporation, or a joint venture in your

not actively participate, activities of

A qualified revocable trust may elect

capacity as an owner of an interest in

renting personal property, and other

to be treated as part of a decedent’s

the partnership, S corporation, or joint

passive trade or business activities.

estate for purposes of the special

venture.

See the instructions for Worksheets

allowance for active participation in

Example. If a partner contributes

1, 2, and 3 beginning on page 7.

rental real estate activities. The election

the use of property to a partnership,

must be made by both the executor (if

none of the partner’s distributive share

Trade or Business

any) of the decedent’s estate and the

of partnership income is income from a

trustee of the revocable trust. For

Activities

rental activity unless the partnership is

details, see Regulations section

engaged in a rental activity.

A trade or business activity is an

1.645-1.

activity (other than a rental activity or

You are not considered to actively

Also, a partner’s gross income from

an activity treated as incidental to an

participate in a rental real estate activity

a guaranteed payment under section

activity of holding property for

if at any time during the tax year your

707(c) is not income from a rental

investment) that:

interest (including your spouse’s

activity. The determination of whether

1. Involves the conduct of a trade or

interest) in the activity was less than

the property used in the activity is

business (within the meaning of section

10% (by value) of all interests in the

provided in the partner’s capacity as an

162),

activity.

owner of an interest in the partnership

2. Is conducted in anticipation of

Active participation is a less stringent

is made on the basis of all the facts and

starting a trade or business, or

circumstances.

requirement than material participation

3. Involves research or experimental

(see Material Participation on page 4).

Reporting Income and

expenditures deductible under section

You may be treated as actively

174 (or that would be if you chose to

Losses From the Activities

participating if, for example, you

deduct rather than capitalize them).

participated in making management

If an activity meets any of the five

decisions or arranged for others to

exceptions listed above, it is not a

Trade or business activities are

provide services (such as repairs) in a

rental activity. You must then

generally reported on Schedule C,

significant and bona fide sense.

determine:

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

Management decisions that may count

Schedule E. See Publicly Traded

1. Whether your rental of the

as active participation include:

Partnerships (PTPs) on page 11. For

•

property is a trade or business activity

Approving new tenants,

trade or business activities that are

•

(see Trade or Business Activities on

Deciding on rental terms,

significant participation passive

•

this page) and, if so,

Approving capital or repair

activities (defined on page 4), see Pub.

2. Whether you materially

expenditures, and

925 for how to report their income or

•

participated in the activity for the tax

Other similar decisions.

losses.

year (see Material Participation on

The maximum special allowance is:

page 4).

•

$25,000 for single individuals and

Special Allowance for

•

If the activity is a trade or business

married individuals filing a joint return

Rental Real Estate

activity in which you did not materially

for the tax year.

•

participate, enter the income and losses

$12,500 for married individuals who

Activities

from the activity on Worksheet 3.

file separate returns for the tax year

•

If the activity is a trade or business

and lived apart from their spouses at all

Active participation. If you actively

activity in which you did materially

times during the tax year.

participated in a passive rental real

•

participate, report any income or loss

$25,000 for a qualifying estate

estate activity, you may be able to

from the activity on the forms or

reduced by the special allowance for

deduct up to $25,000 of loss from the

schedules normally used.

which the surviving spouse qualified.

activity from your nonpassive income.

If the rental activity did not meet any

This special allowance is an exception

Modified adjusted gross income

of the five exceptions, it is generally a

to the general rule disallowing losses in

limitation. If your modified adjusted

passive activity. However, special rules

excess of income from passive

gross income (defined on page 8) is

apply if you conduct the rental activity

activities.

$100,000 or less ($50,000 or less if

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Instructions For Form 8582 - Passive Activity Loss Limitations - 2006 Page 3

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