Special Rules for
may be treated as passive activity gross
Extraordinary personal services are
income and passive activity deductions.
services provided in making rental property
Consolidated Group
available for customer use only if they are
4. An activity of trading personal
The passive activity loss and passive activity
performed by individuals and the customers'
property for the account of owners of
credit of an affiliated group of corporations
use of the property is incidental to their
interests in the activity. For purposes of this
filing a consolidated return for the tax year (a
receipt of the services.
rule, personal property means property that
consolidated group) are determined by
is actively traded, such as stocks, bonds,
3. Rental of the property is incidental to
taking into account the following items of
and other securities.
a nonrental activity.
each member of the group.
The rental of property is incidental to an
Passive activity gross income and
Rental Activities
activity of holding property for investment if
deductions.
the main purpose for holding the property is
A rental activity is a passive activity even if
Gain or loss on dispositions.
to realize a gain from its appreciation and the
the corporation materially participated in the
Net active income (for a consolidated
gross rental income is less than 2% of the
activity unless it meets the requirements
group treated as a closely held corporation).
smaller of the unadjusted basis or the FMV
described in item 2 in Activities That Are Not
Credits from passive activities.
of the property.
Passive Activities above. In addition, if the
Activities That Are Not
corporation meets any of the five exceptions
Unadjusted basis is the cost of the
listed below, the rental of the property is not
property without regard to depreciation
Passive Activities
treated as a rental activity. See Reporting
deductions or any other basis adjustment
Income, Deductions, Losses, and Credits
The following are not classified as passive
described in section 1016.
From Rental Activities below, if the
activities. Generally, income, losses, and
The rental of property is incidental to a
corporation meets any of the exceptions.
credits from these activities are not entered
trade or business activity if:
on Form 8810. However, losses and credits
An activity is a rental activity if tangible
a. The corporation owned an interest in
from these activities may be subject to
property (real or personal) is used by
the trade or business activity during the tax
limitations other than the passive activity loss
customers or held for use by customers and
year,
and credit rules.
the gross income (or expected gross
b. The rental property was mainly used
1. Trade or business activities in which
income) from the activity represents amounts
in the trade or business activity during the tax
the corporation materially participated for the
paid (or to be paid) mainly for the use of the
year or during at least 2 of the 5 preceding
tax year.
property. It does not matter whether the use
tax years, and
of the property is under a lease, a service
2. Any rental real estate activity in which
c. The gross rental income from the
contract, or some other arrangement.
the corporation materially participated if the
property is less than 2% of the smaller of the
Exceptions
corporation was a closely held corporation
unadjusted basis or the FMV of the property.
that derived more than 50% of its gross
An activity is not a rental activity if any of the
Lodging provided for the employer's
receipts from real property trades or
following apply.
convenience to an employee or the
businesses in which it materially participated.
employee's spouse or dependents is
1. The average period of customer use
For purposes of this rule, each interest in
incidental to the activity or activities in which
(see below) of the rental property is:
rental real estate is a separate activity,
the employee performs services.
a. 7 days or less, or
unless the corporation elects to treat all
4. The corporation customarily makes
interests in rental real estate as one activity.
b. 30 days or less and significant
the rental property available during defined
The corporation makes the election by
personal services (see below) were provided
business hours for nonexclusive use by
attaching a statement to its original income
in making the rental property available for
various customers.
tax return for the tax year. See Regulations
customer use.
5. The corporation provides property for
section 1.469-9(g) for details on how to
Figure the average period of customer
make or revoke this election. For information
use in a nonrental activity of a partnership or
use for a class of property by dividing the
joint venture in its capacity as an owner of an
on making a late election, see Rev. Proc.
total number of days in all rental periods by
interest in the partnership or joint venture.
2011-34, 2011-24 I.R.B. 875, available at
the number of rentals during the tax year. If
.
If a partner contributes the use of property
the activity involves renting more than one
to a partnership, none of the partner's
A real property trade or business is any
class of property, multiply the average period
distributive share of partnership income is
real property development, redevelopment,
of customer use of each class by the ratio of
income from a rental activity unless the
construction, reconstruction, acquisition,
the gross rental income from that class to the
conversion, rental, operation, management,
partnership is engaged in a rental activity.
activity's total gross rental income. The
leasing, or brokerage trade or business.
Also, a partner's gross income
activity's average period of customer use
attributable to a guaranteed payment under
equals the sum of these class-by-class
Note. If an activity qualifies for the exception
section 707(c) is not income from a rental
average periods weighted by gross income.
described above in 2016, but has a prior
activity. The determination of whether the
See Regulations section 1.469-1(e)(3)(iii) for
year unallowed PAL, the prior year
property used in the activity is provided in the
more details.
unallowed loss is treated as a loss from a
partner's capacity as an owner of an interest
Significant personal services include only
former passive activity. See Former Passive
in the partnership is made on the basis of all
services performed by individuals. To
Activities, later.
the facts and circumstances.
determine if personal services are
3. A working interest in an oil or gas well
significant, all the relevant facts and
Reporting Income, Deductions,
held directly or through an entity that does
circumstances are taken into consideration,
Losses, and Credits From
not limit the corporation's liability (such as a
including the frequency of the services, the
general partner's interest in a partnership). In
Rental Activities
type and amount of labor required to perform
this case, it does not matter whether the
the services, and the value of the services
If the corporation meets any of the five
corporation materially participated in the
relative to the amount charged for the use of
exceptions listed above, the corporation's
activity for the tax year.
the property. Significant personal services
rental of the property is not a rental activity.
If, however, the corporation's liability was
do not include excluded services.
The corporation then must determine:
limited for part of the year (for example, the
2. Extraordinary personal services were
1. Whether the rental of the property is a
corporation converted its general partnership
provided in making the rental property
trade or business activity (see Trade or
interest to a limited partnership interest
available for customer use.
Business Activities, later) and, if so,
during the year), some of the corporation's
income and losses from the working interest
Instructions for Form 8810 (2016)
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