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2. Your participation in the activity

1. The work isn't the type of work

losses, and credits are limited under

for the tax year constituted

that owners of the activity would

the passive activity rules.

substantially all the participation in the

usually do and one of the principal

Special allowance for a rental real

activity of all individuals (including

purposes of the work that you or your

estate activity. If you actively

individuals who aren't owners of

spouse does is to avoid the passive

participated in a rental real estate

interests in the activity).

loss or credit limitations.

activity, you may be able to deduct up

3. You participated in the activity

2. You do the work in your

to $25,000 of the loss (or credit

for more than 100 hours during the tax

capacity as an investor and you aren't

equivalent to a $25,000 deduction)

year, and your participation in the

directly involved in the day-to-day

from the activity from nonpassive

activity for the tax year wasn't less

operations of the activity. Examples of

income. This “special allowance” is an

than the participation in the activity of

work done as an investor that wouldn't

exception to the general rule

any other individual (including

count toward material participation

disallowing losses in excess of

individuals who weren’t owners of

include:

income from passive activities. The

interests in the activity) for the tax

a. Studying and reviewing

special allowance isn't available if you

year.

financial statements or reports on

were married, file a separate return for

4. The activity was a significant

operations of the activity,

the year, and didn't live apart from

participation activity for the tax year,

b. Preparing or compiling

your spouse at all times during the

and you participated in all significant

summaries or analyses of the

year.

participation activities (including

finances or operations of the activity

Only individuals can actively

activities outside the corporation)

for your own use, and

participate in a rental real estate

during the year for more than 500

c. Monitoring the finances or

activity. However, a decedent's estate

hours. A significant participation

operations of the activity in a

(including a qualified revocable trust

activity is any trade or business

nonmanagerial capacity.

for which a section 645 election has

activity in which you participated for

been made) is treated as actively

more than 100 hours during the year

Effect of determination. Income

participating for its tax years ending

and in which you didn't materially

(loss), deductions, and credits from

less than 2 years after the decedent's

participate under any of the material

an activity are nonpassive if you

death, if the decedent would have

participation tests (other than this

determine that:

satisfied the active participation

test).

You materially participated in a

requirement for the activity for the tax

trade or business activity of the

5. You materially participated in

year the decedent died.

corporation, or

the activity for any 5 tax years

You aren't considered to actively

You were a real estate professional

(whether or not consecutive) during

participate in a rental real estate

(defined earlier) in a rental real estate

the 10 tax years that immediately

activity if, at any time during the tax

activity of the corporation.

precede the tax year.

year, your interest (including your

If you determine that you didn't

6. The activity was a personal

spouse's interest) in the activity was

materially participate in a trade or

service activity and you materially

less than 10% (by value) of all

business activity of the corporation or

participated in the activity for any 3 tax

interests in the activity.

if you have income (loss), deductions,

years (whether or not consecutive)

Active participation is a less

or credits from a rental activity of the

preceding the tax year. A personal

stringent requirement than material

corporation (other than a rental real

service activity involves the

participation. You may be treated as

estate activity in which you materially

performance of personal services in

actively participating if you

participated as a real estate

the fields of health, law, engineering,

participated, for example, in making

professional), the amounts from that

architecture, accounting, actuarial

management decisions or arranging

activity are passive. Report passive

science, performing arts, consulting,

for others to provide services (such as

income (losses), deductions, and

or any other trade or business in

repairs) in a significant and bona fide

credits as follows.

which capital isn't a material

sense. Management decisions that

income-producing factor.

1. If you have an overall gain (the

can count as active participation

excess of income over deductions

7. Based on all the facts and

include approving new tenants,

and losses, including any prior year

circumstances, you participated in the

deciding rental terms, approving

unallowed loss) from a passive

activity on a regular, continuous, and

capital or repair expenditures, and

activity, report the income,

substantial basis during the tax year.

other similar decisions.

deductions, and losses from the

Work counted toward material

activity as indicated in these

Modified adjusted gross income

participation. Generally, any work

instructions.

limitation. The maximum special

that you or your spouse does in

allowance that single individuals and

2. If you have an overall loss (the

connection with an activity held

married individuals filing a joint return

excess of deductions and losses,

through an S corporation (where you

can qualify for is $25,000. The

including any prior year unallowed

own your stock at the time the work is

maximum is $12,500 for married

loss, over income) or credits from a

done) is counted toward material

individuals who file separate returns

passive activity, report the income,

participation. However, work in

and who lived apart at all times during

deductions, losses, and credits from

connection with the activity isn't

the year. The maximum special

all passive activities using the

counted toward material participation

allowance for which an estate can

Instructions for Form 8582 or Form

if either of the following applies.

qualify is $25,000 reduced by the

8582-CR, to see if your deductions,

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Instructions for Schedule K-1 (Form 1120S) (2017)

Instructions For Schedule K-1 (Form 1120s) - Shareholder'S Share Of Income, Deductions, Credits, Etc. - 2017 Page 9

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