Instructions For Form 8582 - Passive Activity Loss Limitations

If the net profit or loss line on your

entered on line 31, 32, 38a, 38b, or 39

or exchange interests through a public

form or schedule shows net profit for the

of that form, and enter the allowed loss

means of obtaining or providing

year, reduce the net profit by the

from the worksheet. To the left of the

information on offers to buy, sell, or

allowed loss from Worksheet 6 or 7, and

entry space, enter “PAL.”

exchange interests. Similarly, the

enter the result on the net profit or loss

substantial equivalent of a secondary

Form 4797 and Form 8949. If you

line.

market exists if prospective buyers and

sold assets from a passive activity or

sellers have the opportunity to buy, sell,

Example. Schedule C shows net

you sold an interest in your passive

or exchange interests in a timeframe

profit for the year of $5,000 from a

activity, all gains from the activity must

and with the regularity and continuity

passive activity. The activity also has a

be entered on the appropriate line of

that the existence of a market maker

Form 4797 gain of $2,500 and a prior

Form 4797 or Form 8949. Identify the

would provide.

year unallowed Schedule C loss of

gain as “FPA.” Enter any allowed losses

$6,000. The loss allowed for 2017 is

Special Instructions for PTPs

for Form 4797 or Form 8949 on the

$6,000. You enter a net loss of $1,000

appropriate line. On Form 8949, include

Section 469(k) provides that the passive

on line 31 of Schedule C (the $5,000 net

“PAL” in the description of the property

activity limitations must be applied

profit for the year less the $6,000 loss

in column (a). On Form 4797, enter

separately to items from each PTP.

allowed for the year). To the left of the

“PAL” to the left of the entry space (for

PALs from a PTP generally may be

entry space, you enter “PAL.”

example, line 2 or line 10).

used only to offset income or gain from

See

Form 4797 and Form

8949,

passive activities of the same PTP. The

Entire disposition with an overall

later, if you also had passive gains and

special allowance (including CRDs) for

loss. If you made an entire disposition

losses from the sale of assets or of an

rental real estate activities doesn’t apply

of your interest in a passive activity and

interest in a passive activity.

to PALs from a PTP.

that activity had an overall loss, none of

the gains, if any, or losses were entered

Schedule E, Part I. Enter the allowed

Passive activity loss rules for part-

on Form 8582 or the worksheets.

loss from the worksheet on line 22 of

ners in PTPs. Don’t report passive

However, all the gains and losses must

Schedule E. An activity that has net

income, gains, or losses from a PTP on

be reported on the forms or schedules

profit for the year and prior year

Form 8582. Instead, use the following

normally used. To the left of the entry

unallowed losses will have net profit on

rules to figure and report your income,

space, enter “EDPA.”

line 21 and the allowed loss on line 22.

gains, and losses from passive activities

The allowed loss on line 22 will include

you held through each PTP you owned

Entire disposition with an overall

the loss allowed to the extent of the net

during the tax year.

gain. Gains and losses from this

profit. Line 24 of Schedule E will show

activity were included on Form 8582 so

1. Combine any current year

total profit and line 25 will show total

that the gains might offset other PALs.

income, gains and losses, and any prior

losses allowed (both passive and

Report all the gains and losses on the

year unallowed losses to see if you have

nonpassive). Line 26 will show the total

forms and schedules normally used,

an overall loss from the PTP. Include

net profit or loss.

and to the left of the entry space, enter

only the same types of income and

“EDPA.”

Schedule E, Parts II and III. Any item

losses you would include to figure your

of income shown on your Schedule K-1

net income or loss from a non-PTP

Publicly Traded

that’s passive income must be entered

passive activity. See

Passive Activity

Partnerships (PTPs)

as passive income in the appropriate

Income and

Deductions, earlier.

column of Schedule E, Part II or III.

2. If you have an overall gain, the

A PTP is a partnership whose interests

Enter the passive loss allowed from

net gain portion (total gain minus total

are traded on an established securities

Worksheet 6 or 7 in the appropriate

losses) is nonpassive income.

market or are readily tradable on a

column for passive losses. The passive

secondary market (or its substantial

It’s important to figure the nonpassive

losses allowed include the loss allowed

equivalent).

income because it must be included in

to the extent of any net income from the

modified adjusted gross income to

An established securities market

activity. Passive net income or loss

figure the special allowance for active

includes any national securities

reportable on Schedule E, Part II,

participation in a non-PTP rental real

exchange and any local exchange

includes any self-charged interest

estate activity on Form 8582. Also, you

income and deductions treated as

registered under the Securities

may be able to include the nonpassive

passive activity income and deductions.

Exchange Act of 1934 or exempted

income in investment income when

See

Self-Charged

Interest, earlier.

from registration because of the limited

figuring your investment interest

volume of transactions. It also includes

See

Form 4797 and Form

8949,

expense deduction. See Form 4952,

any over-the-counter market.

later, if you also had passive gains or

Investment Interest Expense Deduction.

losses from the sale of assets or of an

A secondary market generally exists

Report all gains and allowed losses

interest in a passive activity.

if a person stands ready to make a

from the activity on the forms or

market in the interest. An interest is

Form 4684, Section B. Any passive

schedules normally used, and to the left

treated as readily tradable if the interest

activity gain from Form 4684 is

of each entry space, enter “From PTP.”

is regularly quoted by persons, such as

unchanged. It was used on Form 8582

Example. You have Schedule E

brokers or dealers, who are making a

to determine allowable PALs. If you

income of $8,000 and a Form 4797 prior

market in the interest.

don’t have passive losses on Form

year unallowed loss of $3,500 from the

4684, complete Form 4684 and follow

passive activities of a PTP. You have a

The substantial equivalent of a

the instructions for that form for where to

$4,500 overall gain ($8,000 − $3,500)

secondary market exists if there’s no

report the gain.

identifiable market maker, but holders of

that’s nonpassive income. On

If you have passive losses on Form

interests have a readily available,

Schedule E, Part II, you report the

4684, cross through the amount you first

regular, and ongoing opportunity to sell

$4,500 net gain as nonpassive income

Instructions for Form 8582 (2017)

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Instructions For Form 8582 - Passive Activity Loss Limitations - 2017 Page 13

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