Shareholder'S Instructions For Schedule K-1 (Form 1120s)

Passive Activity Limitations

treated as performed in a real

activity of all individuals (including

property trade or business unless you

individuals who aren't owners of

Section 469 provides rules that limit

owned more than 5% of the stock (or

interests in the activity).

the deduction of certain losses and

more than 5% of the capital or profits

3. You participated in the activity

credits. These rules apply to

interest) in the employer.

for more than 100 hours during the tax

shareholders who:

3. The rental of a dwelling unit any

year, and your participation in the

Are individuals, estates, or trusts;

shareholder used for personal

activity for the tax year wasn't less

and

purposes during the year for more

than the participation in the activity of

Have a passive activity loss or

than the greater of 14 days or 10% of

any other individual (including

credit for the tax year.

the number of days that the residence

individuals who were not owners of

Generally, passive activities

was rented at fair rental value.

interests in the activity) for the tax

include:

year.

4. Activities of trading personal

1. Trade or business activities in

property for the account of owners of

4. The activity was a significant

which you didn't materially participate,

interests in the activities.

participation activity for the tax year,

and

and you participated in all significant

If you have a passive activity loss

2. Activities that meet the

participation activities (including

or credit, use Form 8582, Passive

definition of rental activities under

activities outside the corporation)

Activity Loss Limitations, to figure your

Temporary Regulations section

during the year for more than 500

allowable passive losses and Form

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

hours. A significant participation

8582-CR, Passive Activity Credit

section 1.469-1(e)(3).

activity is any trade or business

Limitations, to figure your allowable

activity in which you participated for

Passive activities don't include the

passive credits. See the instructions

more than 100 hours during the year

following.

for these forms for details.

and in which you didn't materially

1. Trade or business activities in

participate under any of the material

If the corporation had more than

which you materially participated.

participation tests (other than this

one activity, it will attach a statement

2. Rental real estate activities in

test).

to your Schedule K-1 that identifies

which you materially participated if

5. You materially participated in

each activity (trade or business

you were a real estate professional for

the activity for any 5 tax years

activity, rental real estate activity,

the tax year. You were a real estate

(whether or not consecutive) during

rental activity other than rental real

professional only if you met both of

the 10 tax years that immediately

estate, portfolio income) and specifies

the following conditions.

precede the tax year.

the income (loss), deductions, and

a. More than half of the personal

credits from each activity.

6. The activity was a personal

services you performed in trades or

service activity and you materially

Material participation. You must

businesses were performed in real

participated in the activity for any 3 tax

determine if you materially

property trades or businesses in

years (whether or not consecutive)

participated (a) in each trade or

which you materially participated.

preceding the tax year. A personal

business activity held through the

b. You performed more than 750

service activity involves the

corporation and (b) if you were a real

hours of services in real property

performance of personal services in

estate professional (defined earlier),

trades or businesses in which you

the fields of health, law, engineering,

in each rental real estate activity held

materially participated.

architecture, accounting, actuarial

through the corporation. All

science, performing arts, consulting,

For purposes of this rule, each

determinations of material

or any other trade or business in

interest in rental real estate is a

participation are based on your

which capital isn't a material

separate activity, unless you elect to

participation during the corporation's

income-producing factor.

treat all interests in rental real estate

tax year.

as one activity. For details on making

7. Based on all the facts and

Material participation standards for

this election, see the Instructions for

circumstances, you participated in the

shareholders who are individuals are

Schedule E (Form 1040),

activity on a regular, continuous, and

listed below. Special rules apply to

Supplemental Income and Loss.

substantial basis during the tax year.

certain retired or disabled farmers and

If you are married filing jointly,

to the surviving spouses of farmers.

Work counted toward material

either you or your spouse must

See the Instructions for Form 8582 for

participation. Generally, any work

separately meet both (a) and (b) of

details.

that you or your spouse does in

the above conditions, without taking

connection with an activity held

Individuals. If you are an

into account services performed by

through an S corporation (where you

individual, you materially participated

the other spouse.

own your stock at the time the work is

in an activity only if one or more of the

A real property trade or business is

done) is counted toward material

following apply.

any real property development,

participation. However, work in

1. You participated in the activity

redevelopment, construction,

connection with the activity isn't

for more than 500 hours during the tax

reconstruction, acquisition,

counted toward material participation

year.

conversion, rental, operation,

if either of the following applies.

2. Your participation in the activity

management, leasing, or brokerage

1. The work isn't the type of work

for the tax year constituted

trade or business. Services you

that owners of the activity would

substantially all the participation in the

performed as an employee aren't

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Instructions for Schedule K-1 (Form 1120S) (2016)

Shareholder'S Instructions For Schedule K-1 (Form 1120s) - 2016 Page 4

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