Instructions For Form 8582 - Passive Activity Loss Limitations

and a $12,650 prior year unallowed

Specific Instructions

Gain recognized in the current year

loss. You have an overall gain from the

Unrecognized gain as of the

disposition ($15,525 – $15,450 = $75).

Part I—2017 Passive

beginning of the current year

Because you had an overall gain, you

Activity Loss

make the following entries on

Worksheet 1. You enter the $15,525

Use Part I to combine the net income

A partner in a PTP isn’t treated as

gain on the disposition in column (a),

and net loss from all passive activities to

having disposed of an entire interest in

the current year loss of $2,800 in

determine if you have a passive activity

an activity of a PTP until there’s an

column (b), and the prior year unallowed

loss (PAL) for 2017. Use Worksheets 1,

entire disposition of the partner's

loss of $12,650 in column (c).

2, and 3 to determine the entries for

interest in the PTP.

lines 1–3 of Part I, as follows.

Example 2. Activity with overall

Reporting an Entire Disposition

Worksheet 1 is used for rental real

loss. You sell your entire interest in an

on Form 4797 or Form 8949

estate activities with active participation.

oil and gas limited partnership that was

Worksheet 2 is used for commercial

your only passive activity for a gain of

If you completely dispose of your entire

revitalization deductions (CRDs) from

$2,000. You have a current year

interest in a passive activity or a former

rental real estate activities (with or

Schedule E loss of $3,330 and a

passive activity, you may have to report

without active participation).

Schedule E prior year unallowed loss of

net income or loss and prior year

Worksheet 3 is used for all other

$1,115.

unallowed losses from the activity. All

passive activities.

the net income and losses are reported

Because you have an overall loss of

on the forms and schedules normally

$2,445 after combining the gain and

If you need additional lines for

used.

losses, none of the amounts are entered

any of the worksheets, you can

TIP

on Worksheet 3 or on Form 8582.

either attach copies of page 2 or

Combine all income and losses

3, whichever is applicable, or your own

You enter the net loss plus the prior

(including any prior year unallowed

schedule that’s in the same format as

year unallowed loss ($3,330 + $1,115 =

losses) from the activity for the tax year

the worksheet.

$4,445) on Schedule E, Part II, column

to see if you have an overall gain or

(h), and the $2,000 gain on the sale on

loss.

Worksheet 1

Form 8949, in either Part I or Part II,

If you have an overall gain, report the

depending on how long you held the

Individuals and qualifying estates who

income, losses, and prior year

partnership interest.

actively participated in rental real estate

unallowed losses on Worksheet 1, 2, or

activities must include the income or

Disposition of Less Than an

loss from those activities in Worksheet 1

Entire Interest

to figure the amounts to enter on lines

If you have an overall gain and this is

Gains and losses from the disposition of

1a through 1c of Form 8582. Don’t

a former passive activity, report all

less than an entire interest in an activity

include any commercial revitalization

income and losses (including any prior

are treated as part of the net income or

deductions (CRDs) from these activities

year unallowed losses) on the forms

net loss from the activity for the current

in the net income or loss reported in

and schedules normally used and don’t

Worksheet 1.

year.

use Form 8582.

A disposition of less than

Don’t enter a prior year unallowed

If you have an overall loss when you

substantially all of an entire

loss in column (c) of Worksheet 1

combine the income and losses, don’t

interest doesn’t trigger the

unless you actively participated in the

use the worksheets or Form 8582 for

CAUTION

allowance of prior year unallowed

activity in both the year the loss arose

the activity. All losses (including prior

losses.

and the current tax year. If you didn’t

year unallowed losses) are allowed in

actively participate in both years, enter

full. Report the income and losses on

Disposition of Substantially All

the prior year unallowed loss in column

the forms and schedules normally used.

of an Activity

An overall loss from an entire

You may treat the disposition of

Married individuals who file

disposition of a passive activity is a

substantially all of an activity as a

separate returns and lived with

nonpassive loss if you have an

separate activity if you can prove with

their spouses at any time during

aggregate loss from all other passive

CAUTION

reasonable certainty:

the tax year don’t qualify under the

activities. When figuring your modified

active participation rule and must use

adjusted gross income for line 7 of Form

1. The prior year unallowed losses,

Worksheet 3 instead of Worksheet 1.

8582, be sure to take into account the

if any, allocable to the part of the activity

overall loss from the disposition of the

disposed of; and

Column (a). Enter the current year net

activity.

2. The net income or loss for the

income from each activity. Enter the

Example 1. Activity with overall

year of disposition allocable to the part

total of column (a) on line 1a of Form

gain. You sell your entire interest in a

of the activity disposed of.

8582.

rental real estate activity in which you

Example. A Schedule E rental

actively participated for a gain of

activity has current year profit of $5,000

$15,525. $7,300 of the gain is section

and a Form 4797 gain of $2,000. You

1231 gain reported on Form 4797,

enter $7,000 in column (a).

Part I, and $8,225 is ordinary recapture

income reported on Form 4797, Part II.

Column (b). Enter the current year net

On line 22 of Schedule E (Form 1040),

loss for each activity. Don’t enter any

you report a total loss of $15,450, which

prior year unallowed losses in this

includes a current year $2,800 net loss

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Instructions for Form 8582 (2017)

Instructions For Form 8582 - Passive Activity Loss Limitations - 2017 Page 8

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