Instructions For Form 8582 - Passive Activity Loss Limitations

married filing separately), your loss is

Tests for individuals. You materially

Test for a spouse. Participation by

deductible up to the amount of the

your spouse during the tax year in an

participated for the tax year in an

maximum special allowance referred to

activity you own may be counted as

activity if you satisfy at least one of the

in the preceding paragraph.

your participation in the activity even if

following tests.

your spouse did not own an interest in

If your modified adjusted gross

1. You participated in the activity for

the activity and whether or not you and

income is more than $100,000 ($50,000

more than 500 hours.

your spouse file a joint return for the tax

if married filing separately) but less than

2. Your participation in the activity

year.

$150,000 ($75,000 if married filing

for the tax year was substantially all of

separately), your special allowance is

Tests for investors. Work done as an

the participation in the activity of all

limited to 50% of the difference

investor in an activity is not treated as

individuals (including individuals who

between $150,000 ($75,000 if married

participation unless you were directly

did not own any interest in the activity)

filing separately) and your modified

involved in the day-to-day management

for the year.

adjusted gross income.

or operations of the activity. For

3. You participated in the activity for

purposes of this test, work done as an

Generally, if your modified adjusted

more than 100 hours during the tax

investor includes:

gross income is $150,000 or more

year, and you participated at least as

($75,000 or more if married filing

1. Studying and reviewing financial

much as any other individual (including

separately), there is no special

statements or reports on operations of

individuals who did not own any interest

allowance.

the activity.

in the activity) for the year.

2. Preparing or compiling

If you qualify under the active

4. The activity is a significant

summaries or analyses of the finances

participation rules, use Worksheet 1

participation activity for the tax year,

or operations of the activity for your

and see page 7 of the instructions.

and you participated in all significant

own use.

Commercial revitalization deduction

participation activities during the year

3. Monitoring the finances or

(CRD). The special $25,000 allowance

for more than 500 hours.

operations of the activity in a

for the CRD from rental real estate

A significant participation activity is

nonmanagerial capacity.

activities is not subject to the active

any trade or business activity in which

participation rules or modified adjusted

you participated for more than 100

Special rules for limited partners. If

gross income limits discussed above.

hours during the year and in which you

you were a limited partner in an activity,

The $25,000 allowance must first be

did not materially participate under any

you generally did not materially

applied to losses from rental real estate

of the material participation tests (other

participate in the activity. You did

activities with active participation,

than this fourth test).

materially participate in the activity,

figured without regard to the CRD (see

5. You materially participated in the

however, if you met material

Part II). Any remaining portion of the

activity for any 5 (whether or not

participation test 1, 5, or 6 (see Tests

$25,000 allowance is available for the

consecutive) of the 10 immediately

for individuals on this page) for the tax

CRD from rental real estate activities

preceding tax years.

year.

(see Part III). See the instructions for

6. The activity is a personal service

Worksheet 2 on page 8. For general

However, for purposes of the

activity in which you materially

information about the CRD, see Pub.

material participation tests, you are not

participated for any 3 (whether or not

954, Tax Incentives for Distressed

treated as a limited partner if you also

consecutive) preceding tax years.

Communities, and section 1400I.

were a general partner in the

An activity is a personal service

partnership at all times during the

Material Participation

activity if it involves the performance of

partnership’s tax year ending with or

personal services in the fields of health,

within your tax year (or, if shorter,

For the material participation tests listed

during the portion of the partnership’s

law, engineering, architecture,

below, participation generally includes

tax year in which you directly or

accounting, actuarial science,

any work done in connection with an

indirectly owned your limited partner

performing arts, consulting, or in any

activity if you owned an interest in the

interest).

other trade or business in which capital

activity at the time you did the work.

is not a material income-producing

The capacity in which you did the work

A limited partner’s share of an

factor.

does not matter. However, work is not

electing large partnership’s taxable

participation if:

7. Based on all the facts and

income or loss from all trade or

•

It is not work that an owner would

circumstances, you participated in the

business and rental activities is treated

customarily do in the same type of

activity on a regular, continuous, and

as income or loss from the conduct of a

activity, and

substantial basis during the tax year.

single passive trade or business

•

One of your main reasons for doing

You did not materially participate in

activity.

the work was to avoid the disallowance

the activity under this seventh test,

Special rules for certain retired or

of losses or credits from the activity

however, if you participated in the

disabled farmers and surviving

under the passive activity rules.

activity for 100 hours or less during the

spouses of farmers. Certain retired or

Proof of participation. You may prove

tax year.

disabled farmers and surviving spouses

your participation in an activity by any

Your participation in managing the

of farmers are treated as materially

reasonable means. You do not have to

activity does not count in determining

participating in a farming activity if the

maintain contemporaneous daily time

whether you materially participated

real property used in the activity would

reports, logs, or similar documents if

under this test if:

meet the estate tax rules for special

you can establish your participation by

valuation of farm property passed from

a. Any person (except you) received

other reasonable means. For this

a qualifying decedent. See Temporary

compensation for performing services

purpose, reasonable means include,

Regulations section 1.469-5T(h)(2).

in the management of the activity, or

but are not limited to, identifying

b. Any individual spent more hours

services performed over a period of

Estates and trusts. The PAL

during the tax year performing services

time and the approximate number of

limitations apply in figuring the

in the management of the activity than

hours spent performing the services

distributable net income and taxable

you did (regardless of whether the

during that period, based on

income of an estate or trust. See

individual was compensated for the

appointment books, calendars, or

Temporary Regulations section

narrative summaries.

management services).

1.469-1T(b)(2) and (3). The rules for

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Instructions For Form 8582 - Passive Activity Loss Limitations - 2006 Page 4

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