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lose in the activity. These losses and

trades or businesses in which you materially

partnership. All determinations of material

deductions include a loss on the disposition

participated.

participation are based on your participation

of assets and the section 179 expense

during the partnership's tax year.

b. You performed more than 750 hours

deduction. However, if you acquired your

of services in real property trades or

Material participation standards for

partnership interest before 1987, the at-risk

businesses in which you materially

partners who are individuals are listed below.

rules do not apply to losses from an activity

participated.

Special rules apply to certain retired or

of holding real property placed in service

disabled farmers and to the surviving

For a closely held C corporation

before 1987 by the partnership. The activity

spouses of farmers. See the Instructions for

(defined in section 465(a)(1)(B)), the

of holding mineral property doesn't qualify for

TIP

Form 8582 for details.

above conditions are treated as met

this exception. The partnership should

Corporations should refer to the

if more than 50% of the corporation's gross

identify on a statement attached to

Instructions for Form 8810 for the material

receipts were from real property trades or

Schedule K-1 any losses that are not subject

participation standards that apply to them.

businesses in which the corporation

to the at-risk limitations.

materially participated.

Individuals (other than limited

Generally, you are not at risk for amounts

partners). If you are an individual (either a

For purposes of this rule, each interest in

such as the following.

general partner or a limited partner who

rental real estate is a separate activity,

Nonrecourse loans used to finance the

owned a general partnership interest at all

unless you elect to treat all interests in rental

activity, to acquire property used in the

times during the tax year), you materially

real estate as one activity. For details on

activity, or to acquire your interest in the

participated in an activity only if one or more

making this election, see the Instructions for

activity, that are not secured by your own

of the following apply.

Schedule E (Form 1040), Supplemental

property (other than the property used in the

1. You participated in the activity for

Income and Loss.

activity). See the instructions for item K, later,

more than 500 hours during the tax year.

for the exception for qualified nonrecourse

If you are married filing jointly, either you

financing secured by real property.

2. Your participation in the activity for

or your spouse must separately meet both

Cash, property, or borrowed amounts

the tax year constituted substantially all the

(a) and (b) of the above conditions, without

used in the activity (or contributed to the

participation in the activity of all individuals

taking into account services performed by

activity, or used to acquire your interest in

(including individuals who are not owners of

the other spouse.

the activity) that are protected against loss

interests in the activity).

A real property trade or business is any

by a guarantee, stop-loss agreement, or

3. You participated in the activity for

real property development, redevelopment,

other similar arrangement (excluding

more than 100 hours during the tax year, and

construction, reconstruction, acquisition,

casualty insurance and insurance against

your participation in the activity for the tax

conversion, rental, operation, management,

tort liability).

year wasn't less than the participation in the

leasing, or brokerage trade or business.

Amounts borrowed for use in the activity

activity of any other individual (including

Services you performed as an employee are

from a person who has an interest in the

individuals who were not owners of interests

not treated as performed in a real property

activity, other than as a creditor, or who is

in the activity) for the tax year.

trade or business unless you owned more

related, under section 465(b)(3), to a person

than 5% of the stock (or more than 5% of the

4. The activity was a significant

(other than you) having such an interest.

capital or profits interest) in the employer.

participation activity for the tax year, and you

participated in all significant participation

3. Working interests in oil or gas wells if

You should get a separate statement of

activities (including activities outside the

you were a general partner.

income, expenses, and other items for each

partnership) during the year for more than

activity from the partnership.

4. The rental of a dwelling unit any

500 hours. A significant participation activity

partner used for personal purposes during

Passive Activity Limitations

is any trade or business activity in which you

the year for more than the greater of 14 days

participated for more than 100 hours during

Section 469 provides rules that limit the

or 10% of the number of days that the

the year and in which you didn't materially

deduction of certain losses and credits.

residence was rented at fair rental value.

participate under any of the material

These rules apply to partners who:

5. Activities of trading personal property

participation tests (other than this test).

Are individuals, estates, trusts, closely

for the account of owners of interests in the

held C corporations, or personal service

5. You materially participated in the

activities.

corporations; and

activity for any 5 tax years (whether or not

Have a passive activity loss or credit for

consecutive) during the 10 tax years that

If you are an individual, an estate, or a

the tax year.

immediately precede the tax year.

trust, and you have a passive activity loss or

credit, use Form 8582, Passive Activity Loss

6. The activity was a personal service

Generally, passive activities include the

Limitations, to figure your allowable passive

activity and you materially participated in the

following.

losses and Form 8582-CR, Passive Activity

activity for any 3 tax years (whether or not

Credit Limitations, to figure your allowable

1. Trade or business activities in which

consecutive) preceding the tax year. A

you didn't materially participate.

passive credits. For a corporation, use Form

personal service activity involves the

8810, Corporate Passive Activity Loss and

performance of personal services in the

2. Activities that meet the definition of

Credit Limitations. See the instructions for

fields of health, law, engineering,

rental activities under Temporary

these forms for details.

architecture, accounting, actuarial science,

Regulations section 1.469-1T(e)(3) and

performing arts, consulting, or any other

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

If the partnership had more than one

trade or business in which capital isn't a

activity, it will attach a statement to your

Passive activities do not include the

material income-producing factor.

Schedule K-1 that identifies each activity

following.

(trade or business activity, rental real estate

7. Based on all the facts and

1. Trade or business activities in which

activity, rental activity other than rental real

circumstances, you participated in the

you materially participated.

estate, and other activity) and specifies the

activity on a regular, continuous, and

income (loss), deductions, and credits from

2. Rental real estate activities in which

substantial basis during the tax year.

each activity.

you materially participated if you were a real

Limited partners. If you are a limited

estate professional for the tax year. You

Material participation. You must

partner, you do not materially participate in

were a real estate professional only if you

determine if you materially participated (a) in

an activity unless you meet one of the tests

met both of the following conditions.

each trade or business activity held through

in paragraph 1, 5, or 6 above.

a. More than half of the personal

the partnership, and (b) if you were a real

Work counted toward material

services you performed in trades or

estate professional (defined earlier) in each

participation. Generally, any work that you

businesses were performed in real property

rental real estate activity held through the

Partner's Instructions for Schedule K-1 (Form 1065)

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Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Deductions, Credits, Etc. - 2017 Page 3

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