Instructions For Form 8582 - Passive Activity Loss Limitations

prior year unallowed losses from the

Note. If a rental real estate activity isn’t

1040), Profit or Loss From Business

activity.

a passive activity for the current year,

(Sole Proprietorship), Schedule C-EZ

any prior year unallowed loss is treated

(Form 1040), Net Profit From Business

Overall loss. This is (a) the excess of

as a loss from a former passive activity.

(Sole Proprietorship), or Schedule F

the prior year unallowed losses from the

See

Former Passive

Activities, later.

(Form 1040), Profit or Loss From

activity over the “net income” from the

Farming, or in Part II or III of Schedule E

3. A working interest in an oil or gas

activity, or (b) the prior year unallowed

(Form 1040). For trade or business

well. Your working interest must be held

losses from the activity plus the “net

activities that are significant

directly or through an entity that doesn’t

loss” from the activity.

participation passive activities (defined

limit your liability (such as a general

Prior year unallowed losses. These

in item 4 under

Tests for

individuals,

partner interest in a partnership). In this

are the losses from an activity that were

later), see Pub. 925 for how to report

case, it doesn’t matter whether you

disallowed under the PAL limitations in

their income or losses.

materially participated in the activity for

a prior year and carried forward to the

the tax year.

Rental Activities

tax year under section 469(b). See

If, however, your liability was limited

Regulations section 1.469-1(f)(4) and

A rental activity is a passive activity

for part of the year (for example, you

Pub. 925.

even if you materially participated in the

converted your general partner interest

activity (unless it’s a rental real estate

to a limited partner interest during the

Activities That Are Not

activity in which you materially

year), some of your income and losses

Passive Activities

participated and you were a real estate

from the working interest may be treated

professional).

The following aren’t passive activities.

as passive activity gross income and

passive activity deductions. See

1. Trade or business activities in

An activity is a rental activity if

Temporary Regulations section

which you materially participated for the

tangible property (real or personal) is

1.469-1T(e)(4)(ii).

tax year.

used by customers or held for use by

customers and the gross income (or

4. The rental of a dwelling unit you

2. Any rental real estate activity in

expected gross income) from the

used as a residence if section 280A(c)

which you materially participated if you

activity represents amounts paid (or to

(5) applies. This section applies if you

were a “real estate professional” for the

be paid) mainly for the use of the

rented out a dwelling unit that you also

tax year. You were a real estate

property. It doesn’t matter whether the

used as a home during the year for a

professional only if:

use is under a lease, a service contract,

number of days that exceeds the

a. More than half of the personal

or some other arrangement.

greater of 14 days or 10% of the number

services you performed in trades or

of days during the year that the home

businesses during the tax year were

However, if you meet any of the five

was rented at a fair rental.

performed in real property trades or

exceptions below, the rental of the

5. An activity of trading personal

businesses in which you materially

property isn’t treated as a rental activity.

property for the account of owners of

participated, and

See

Reporting Income and Losses

interests in the activity. For purposes of

From the

Activities, later, if you meet

b. You performed more than 750

this rule, personal property means

any of the exceptions.

hours of services during the tax year in

property that’s actively traded, such as

real property trades or businesses in

Exceptions

stocks, bonds, and other securities. See

which you materially participated.

Temporary Regulations section

An activity is not a rental activity if any of

1.469-1T(e)(6) for more details.

the following apply.

For purposes of whether you

materially participated under item (2),

1. The average period of customer

Generally, income and losses from

each interest in rental real estate is a

use is:

these activities aren’t entered on Form

separate activity, unless you elect to

8582. However, losses from these

a. 7 days or less, or

treat all interests in rental real estate as

activities may be subject to limitations

b. 30 days or less and significant

one activity. For details on making this

other than the passive loss rules.

personal services were provided in

election, see the Instructions for

making the rental property available for

Schedule E (Form 1040).

Trade or Business

customer use.

If you’re married filing jointly, one

Activities

spouse must separately meet both

Figure the average period of

A trade or business activity is an activity

(2)(a) and (2)(b), without taking into

customer use for a class of property by

(other than a rental activity or an activity

account services performed by the other

dividing the total number of days in all

treated as incidental to an activity of

spouse.

rental periods by the number of rentals

holding property for investment) that:

during the tax year. If the activity

A real property trade or business is

1. Involves the conduct of a trade or

involves renting more than one class of

any real property development,

business (within the meaning of section

property, multiply the average period of

redevelopment, construction,

162),

customer use of each class by the ratio

reconstruction, acquisition, conversion,

of the gross rental income from that

rental, operation, management, leasing,

2. Is conducted in anticipation of

class to the activity's total gross rental

or brokerage trade or business.

starting a trade or business, or

income. The activity's average period of

Services you performed as an

3. Involves research or experimental

customer use equals the sum of these

employee aren’t treated as performed in

expenditures deductible under section

class-by-class average periods

a real property trade or business unless

174 (or that would be if you chose to

weighted by gross income. See

you owned more than 5% of the stock

deduct rather than capitalize them).

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

(or more than 5% of the capital or profits

Trade or business activities are

Significant personal services include

interest) in the employer.

generally reported on Schedule C (Form

only services performed by individuals.

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Instructions for Form 8582 (2017)

Instructions For Form 8582 - Passive Activity Loss Limitations - 2017 Page 2

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