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or your spouse does in connection with an

against passive income from the same PTP

as passive income on the form or schedule

activity held through a partnership (where

in later years. If the partner's entire interest in

you normally use.

you own your partnership interest at the time

the PTP is completely disposed of, any

Example. You have a Schedule E (Form

the work is done) is counted toward material

unused losses are allowed in full in the year

1040) loss of $12,000 (current year losses

participation. However, work in connection

of disposition.

plus prior year unallowed losses) and a Form

with the activity isn't counted toward material

If you have an overall gain from a PTP,

4797 gain of $7,200. Report the $7,200 gain

participation if either of the following applies.

the net gain is nonpassive income. In

on the appropriate line of Form 4797. On

1. The work isn't the type of work that

addition, the nonpassive income is included

Schedule E (Form 1040), line 28, report

owners of the activity would usually do and

in investment income to figure your

$7,200 of the losses as a passive loss in

one of the principal purposes of the work that

investment interest expense deduction.

column (f). Carry forward to 2018 the

you or your spouse does is to avoid the

Do not report passive income, gains, or

unallowed loss of $4,800 ($12,000 −

passive loss or credit limitations.

losses from a PTP on Form 8582. Instead,

$7,200).

2. You do the work in your capacity as

use the following rules to figure and report on

If you have unallowed losses from more

an investor and you are not directly involved

the proper form or schedule your income,

than one activity of the PTP or from the same

in the day-to-day operations of the activity.

gains, and losses from passive activities that

activity of the PTP that must be reported on

Examples of work done as an investor that

you held through each PTP you owned

different forms, you must allocate the

would not count toward material participation

during the tax year.

unallowed losses on a pro rata basis to figure

include:

1. Combine any current year income,

the amount allowed from each activity or on

a. Studying and reviewing financial

gains and losses, and any prior year

each form.

statements or reports on operations of the

unallowed losses to see if you have an

To allocate and keep a record of the

activity,

overall gain or loss from the PTP. Include

unallowed losses, use Worksheets

only the same types of income and losses

TIP

b. Preparing or compiling summaries or

5, 6, and 7 of Form 8582. List each

you would include in your net income or loss

analyses of the finances or operations of the

activity of the PTP in Worksheet 5. Enter the

from a non-PTP passive activity. See Pub.

activity for your own use, and

overall loss from each activity in column (a).

925, Passive Activity and At-Risk Rules, for

c. Monitoring the finances or operations

Complete column (b) of Worksheet 5

more details.

of the activity in a non-managerial capacity.

according to its instructions. Multiply the total

2. If you have an overall gain, the net

unallowed loss from the PTP by each ratio in

Effect of determination. Income (loss),

gain portion (total gain minus total losses) is

column (b) and enter the result in column (c)

deductions, and credits from an activity are

nonpassive income. On the form or schedule

of Worksheet 5. Then, complete Worksheet

nonpassive if you determine that:

you normally use, report the net gain portion

6 if all the loss from the same activity is to be

You materially participated in a trade or

as nonpassive income and the remaining

reported on one form or schedule. Use

business activity of the partnership, or

income and the total losses as passive

Worksheet 7 instead of Worksheet 6 if you

You were a real estate professional

income and loss. To the left of the entry

have more than one loss to be reported on

(defined earlier) in a rental real estate activity

space, enter “From PTP.” It is important to

different forms or schedules for the same

of the partnership.

identify the nonpassive income because the

activity. Enter the net loss plus any prior year

nonpassive portion is included in modified

If you determine that you didn't materially

unallowed losses in column (a) of Worksheet

adjusted gross income for purposes of

participate in a trade or business activity of

6 (or Worksheet 7, if applicable). The losses

figuring on Form 8582 the “special

the partnership or if you have income (loss),

in column (c) of Worksheet 6 (column (e) of

allowance” for active participation in a

deductions, or credits from a rental activity of

Worksheet 7) are the allowed losses to

non-PTP rental real estate activity. In

the partnership (other than a rental real

report on the forms or schedules. Report

addition, the nonpassive income is included

estate activity in which you materially

both these losses and any income from the

in investment income when figuring your

participated as a real estate professional),

PTP on the forms and schedules you

investment interest expense deduction on

the amounts from that activity are passive.

normally use.

Form 4952, Investment Interest Expense

Report passive income (losses), deductions,

Deduction.

and credits as follows.

4. If you have an overall loss and you

disposed of your entire interest in the PTP to

1. If you have an overall gain (the

Example. If you have Schedule E (Form

an unrelated person in a fully taxable

excess of income over deductions and

1040) income of $8,000, and a Form 4797,

transaction during the year, your losses

losses, including any prior year unallowed

Sales of Business Property, prior year

(including prior year unallowed losses)

loss) from a passive activity, report the

unallowed loss of $3,500 from the passive

allocable to the activity for the year are not

income, deductions, and losses from the

activities of a particular PTP, you have a

limited by the passive loss rules. A fully

activity as indicated in these instructions.

$4,500 overall gain ($8,000 − $3,500). On

taxable transaction is one in which you

2. If you have an overall loss (the

Schedule E (Form 1040), line 28, report the

recognize all your realized gain or loss.

excess of deductions and losses, including

$4,500 net gain as nonpassive income in

Report the income and losses on the forms

any prior year unallowed loss, over income)

column (j). In column (g), report the

and schedules you normally use.

or credits from a passive activity, report the

remaining Schedule E (Form 1040) gain of

For rules on the disposition of an

income, deductions, losses, and credits from

$3,500 ($8,000 − $4,500). On the

entire interest reported using the

all passive activities using the Instructions for

appropriate line of Form 4797, report the

TIP

installment method, see the

Form 8582 or the Instructions for Form

prior year unallowed loss of $3,500. Be sure

Instructions for Form 8582.

8582-CR (or Form 8810), to see if your

to enter “From PTP” to the left of each entry

deductions, losses, and credits are limited

space.

under the passive activity rules.

Special allowance for a rental real estate

3. If you have an overall loss (but didn't

activity. If you actively participated in a

dispose of your entire interest in the PTP to

Publicly traded partnerships (PTP). The

rental real estate activity, you may be able to

an unrelated person in a fully taxable

passive activity limitations are applied

deduct up to $25,000 of the loss from the

transaction during the year), the losses are

separately for items (other than the

activity from nonpassive income. This

allowed to the extent of the income, and the

low-income housing credit and the

“special allowance” is an exception to the

excess loss is carried forward to use in a

rehabilitation credit) from each PTP. Thus, a

general rule disallowing losses in excess of

future year when you have income to offset

net passive loss from a PTP may not be

income from passive activities. The special

it. Report as a passive loss on the schedule

deducted from other passive income.

allowance isn't available if you were married,

or form you normally use the portion of the

Instead, a passive loss from a PTP is

file a separate return for the year, and didn't

loss equal to the income. Report the income

suspended and carried forward to be applied

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 4

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