2009 Department of the Treasury
Internal Revenue Service
Instructions for Form 8582
Passive Activity Loss Limitations
Section references are to the Internal rental passive activities. Overall loss is limited, and you do not need to
Revenue Code unless otherwise noted. defined under Definitions on page 2. complete Form 8582. Enter losses
reported on Schedule E (Form 1040),
General Instructions In figuring your overall gain or loss
from all passive activities for the year,
Part I, line 22, on Schedule E, Part l,
line 23. For losses from a partnership
do not include the following income or
Purpose of Form losses.
or an S corporation, enter the amount
Form 8582 is used by noncorporate of the allowable loss from Schedule K-1
1. Net income that is not passive in Schedule E (Form 1040), Part II,
taxpayers to figure the amount of any activity income. See Passive Activity
passive activity loss (PAL) for the column (f). Enter losses reported on
Income beginning on page 5. line 32 of Form 4835, Farm Rental
current tax year. 2. Net losses that are not passive Income and Expenses, on Form 4835,
A PAL occurs when total losses activity net losses. See Activities That line 33c.
(including prior year unallowed losses) Are Not Passive Activities on page 2.
from all your passive activities exceed 3. Net income or net loss from your
the total income from all your passive interest in any publicly traded Coordination With Other
activities. partnership (PTP). See Publicly Traded
Generally, passive activities include: Partnerships (PTPs) beginning on Limitations
• Trade or business activities in which page 11. Generally, PALs are subject to other
you did not materially participate for the 4. Any overall loss from an entire limitations (for example, basis and
tax year. disposition of a passive activity. See at-risk limitations) before they are
• Rental activities, regardless of your Dispositions beginning on page 6 for subject to the passive loss limitations.
participation. more information. Once a loss becomes allowable under
PALs cannot be used to offset these other limitations, you must
income from nonpassive activities. Exception 2 determine whether the loss is limited
However, a special allowance for rental under the passive loss rules. See Form
real estate activities may allow some You actively participated in rental real 6198, At-Risk Limitations, for details on
losses even if the losses exceed estate activities (see Special Allowance
the at-risk rules. Also, capital losses
passive income. for Rental Real Estate Activities
beginning on page 3), and you meet all that are allowable under the passive
PALs not allowed in the current year of the following conditions. loss rules may be limited under the
are carried forward until they are • Rental real estate activities with capital loss limitations of section 1211.
allowed either against passive activity active participation were your only Percentage depletion deductions that
income, against the special allowance, passive activities. are allowable under the passive loss
if applicable, or when you sell or • You have no prior year unallowed rules may be limited under section
exchange your entire interest in the losses from these activities. 613A(d).
activity in a fully taxable transaction to • Your total loss from the rental real
an unrelated party. estate activities was not more than
For more information, see Pub. 925, $25,000 ($12,500 if married filing
Before Completing Form
Passive Activity and At-Risk Rules, separately and you lived apart from 8582
which contains a filled-in example of your spouse all year). To find out if your activity is treated as a
Form 8582 with step-by-step • If you are married filing separately, passive activity, read the following
instructions for reporting losses from you lived apart from your spouse all
passive activities. sections of these instructions.
Note. Corporations subject to the • You have no current or prior year • Trade or Business Activities if your
passive activity rules must use Form unallowed credits from a passive activity is a trade or business activity
8810, Corporate Passive Activity Loss activity. (page 3).
and Credit Limitations. • Your modified adjusted gross income • Rental Activities if your activity is the
was not more than $100,000 (not more renting of tangible property (beginning
Who Must File than $50,000 if married filing separately on page 2).
Form 8582 is filed by individuals, and you lived apart from your spouse • Material Participation (on page 4).
estates, and trusts who have losses all year). • Grouping of Activities (page 5).
(including prior year unallowed losses) • You do not hold any interest in a To find out how to treat income and
from passive activities. You do not have rental real estate activity as a limited deductions from your activity, read
to file Form 8582 if you meet Exception partner or as a beneficiary of an estate Passive Activity Income and
1 or 2 below. or a trust. Deductions, Former Passive Activities,
For the definition of modified and Dispositions (pages 5 through 7).
Exception 1 adjusted gross income, see the
You do not have an overall loss when instructions for line 7 on page 8. To find out how to enter income and
you combine all your net income and losses on Form 8582, read the
net losses (including any prior year If all the above conditions are met, instructions for Worksheets 1, 2, and 3
unallowed losses) from business or your rental real estate losses are not (beginning on page 7).
Cat. No. 64294A
A real property trade or business is Losses From the Activities on page 3 if
Definitions any real property development, you meet any of the exceptions.
Except as otherwise indicated, the redevelopment, construction,
following terms in these instructions are reconstruction, acquisition, conversion, An activity is a rental activity if
defined as shown below. rental, operation, management, leasing, tangible property (real or personal) is
or brokerage trade or business. used by customers or held for use by
Net income. This is the excess of customers and the gross income (or
current year income over current year Services you performed as an expected gross income) from the
deductions from the activity. This employee are not treated as performed activity represents amounts paid (or to
includes any current year gains or in a real property trade or business be paid) mainly for the use of the
losses from the disposition of assets or unless you owned more than 5% of the property. It does not matter whether the
an interest in the activity. stock (or more than 5% of the capital or use is under a lease, a service contract,
Net loss. This is the excess of current profits interest) in the employer. or some other arrangement.
year deductions over current year Note. If a rental real estate activity is
income from the activity. This includes not a passive activity for the current Exceptions
any current year gains or losses from year, any prior year unallowed loss is An activity is not a rental activity if:
the disposition of assets or an interest treated as a loss from a former passive
in the activity. activity. See Former Passive Activities 1. The average period of customer
on page 6. use is:
Overall gain. This is the excess of the a. 7 days or less, or
“net income” from the activity over the 3. A working interest in an oil or gas
prior year unallowed losses from the well. Your working interest must be held b. 30 days or less and significant
activity. directly or through an entity that does personal services were provided in
not limit your liability (such as a general making the rental property available for
Overall loss. This is (a) the excess of partner interest in a partnership). In this customer use.
the prior year unallowed losses from case, it does not matter whether you Figure the average period of
the activity over the “net income” from materially participated in the activity for customer use for a class of property by
the activity or (b) the prior year the tax year. dividing the total number of days in all
unallowed losses from the activity plus If, however, your liability was limited rental periods by the number of rentals
the “net loss” from the activity. for part of the year (for example, you during the tax year. If the activity
Prior year unallowed losses. These converted your general partner interest involves renting more than one class of
are the losses from an activity that were to a limited partner interest during the property, multiply the average period of
disallowed under the PAL limitations in year), some of your income and losses customer use of each class by the ratio
a prior year and carried forward to the from the working interest may be of the gross rental income from that
tax year under section 469(b). See treated as passive activity gross income class to the activity’s total gross rental
Regulations section 1.469-1(f)(4) and and passive activity deductions. See income. The activity’s average period of
Pub. 925. Temporary Regulations section customer use equals the sum of these
1.469-1T(e)(4)(ii). class-by-class average periods
Activities That Are Not 4. The rental of a dwelling unit you weighted by gross income. See
used as a residence if section Regulations section 1.469-1(e)(3)(iii).
Passive Activities 280A(c)(5) applies. This section applies Significant personal services include
The following are not passive activities. if you rented out a dwelling unit that you only services performed by individuals.
1. Trade or business activities in also used as a home during the year for To determine if personal services are
which you materially participated for the a number of days that exceeds the significant, all relevant facts and
tax year. greater of 14 days or 10% of the circumstances are taken into
2. Any rental real estate activity in number of days during the year that the consideration, including the frequency
which you materially participated if you home was rented at a fair rental. of the services, the type and amount of
were a “real estate professional” for the 5. An activity of trading personal labor required to perform the services,
tax year. You were a real estate property for the account of owners of and the value of the services relative to
professional only if: interests in the activity. For purposes of the amount charged for use of the
this rule, personal property means property.
a. More than half of the personal property that is actively traded, such as
services you performed in trades or 2. Extraordinary personal services
stocks, bonds, and other securities. were provided in making the rental
businesses during the tax year were See Temporary Regulations section
performed in real property trades or property available for customer use.
1.469-1T(e)(6) for more details. This applies only if the services are
businesses in which you materially
participated, and performed by individuals and the
Generally, income and losses from customers’ use of the property is
b. You performed more than 750 these activities are not entered on Form
hours of services during the tax year in incidental to their receipt of the
8582. However, losses from these services.
real property trades or businesses in activities may be subject to limitations
which you materially participated. 3. Rental of the property is
other than the passive loss rules. incidental to a nonrental activity.
For purposes of item (2), each
interest in rental real estate is a The rental of property is incidental to
separate activity, unless you elect to Rental Activities an activity of holding property for
treat all interests in rental real estate as A rental activity is a passive activity investment if the main purpose of
one activity. For details on making this even if you materially participated in the holding the property is to realize a gain
election, see page E-2 of the activity (unless it is a rental real estate from its appreciation and the gross
instructions for Schedule E (Form activity in which you materially rental income is less than 2% of the
1040). participated and you were a real estate smaller of the unadjusted basis or the
If you are married filing jointly, one professional). fair market value (FMV) of the property.
spouse must separately meet both However, if you meet any of the five Unadjusted basis is the cost of the
(2)(a) and (2)(b), without taking into exceptions beginning below, the rental property without regard to depreciation
account services performed by the of the property is not treated as a rental deductions or any other basis
other spouse. activity. See Reporting Income and adjustment described in section 1016.
-2- Instructions for Form 8582 (2009)
The rental of property is incidental to through a PTP or if any of the rules The special allowance is not
a trade or business activity if: described under Recharacterization of available if you were married, are filing
a. You own an interest in the trade Passive Income on page 6 apply. See a separate return for the year, and lived
or business activity during the tax year, the PTP rules beginning on page 11. with your spouse at any time during the
b. The rental property was mainly If none of the special rules apply, year.
used in the trade or business activity enter the income and losses from the Only an individual, a qualifying
during the tax year or during at least 2 passive rental activity on Worksheet 1, estate, or a qualified revocable trust
of the 5 preceding tax years, and 2, or 3. that made an election to treat the trust
c. The gross rental income from the Worksheet 1 is for passive rental as part of the decedent’s estate may
property is less than 2% of the smaller real estate activities in which you actively participate in a rental real
of the unadjusted basis or the FMV of actively participated. See Special estate activity. Unless future regulations
the property. Allowance for Rental Real Estate provide an exception, limited partners
Lodging provided for the employer’s Activities beginning on this page. are not treated as actively participating
convenience to an employee or the in a partnership’s rental real estate
employee’s spouse or dependents is Worksheet 2 is for commercial activity.
incidental to the activity or activities in revitalization deductions (CRDs) from
A qualifying estate is the estate of a
which the employee performs services. rental real estate activities. CRDs from
decedent for tax years ending less than
4. You customarily make the rental rental real estate activities are not
2 years after the date of the decedent’s
property available during defined entered on Worksheet 1 or 3. See
death if the decedent would have
business hours for nonexclusive use by Commercial revitalization deduction
satisfied the active participation
various customers. (CRD) on page 4.
requirements for the rental real estate
5. You provide property for use in a Worksheet 3 is for passive rental activity for the tax year the decedent
nonrental activity of a partnership, real estate activities in which you did died.
S corporation, or a joint venture in your not actively participate, activities of
capacity as an owner of an interest in A qualified revocable trust may elect
renting personal property, and other to be treated as part of a decedent’s
the partnership, S corporation, or joint passive trade or business activities.
venture. estate for purposes of the special
See the instructions for Worksheets allowance for active participation in
Example. If a partner contributes 1, 2, and 3 beginning on page 7. rental real estate activities. The election
the use of property to a partnership, must be made by both the executor (if
none of the partner’s distributive share Trade or Business any) of the decedent’s estate and the
of partnership income is income from a trustee of the revocable trust. For
rental activity unless the partnership is Activities details, see Regulations section
engaged in a rental activity. A trade or business activity is an 1.645-1.
activity (other than a rental activity or You are not considered to actively
Also, a partner’s gross income from an activity treated as incidental to an
a guaranteed payment under section participate in a rental real estate activity
activity of holding property for if at any time during the tax year your
707(c) is not income from a rental investment) that:
activity. The determination of whether interest (including your spouse’s
the property used in the activity is 1. Involves the conduct of a trade or interest) in the activity was less than
provided in the partner’s capacity as an business (within the meaning of section 10% (by value) of all interests in the
owner of an interest in the partnership 162), activity.
is made on the basis of all the facts and 2. Is conducted in anticipation of Active participation is a less stringent
circumstances. starting a trade or business, or requirement than material participation
3. Involves research or experimental (see Material Participation on page 4).
Reporting Income and expenditures deductible under section You may be treated as actively
Losses From the Activities 174 (or that would be if you chose to participating if, for example, you
deduct rather than capitalize them). participated in making management
If an activity meets any of the five
exceptions listed above, it is not a decisions or arranged for others to
Trade or business activities are
rental activity. You must then provide services (such as repairs) in a
generally reported on Schedule C,
determine: significant and bona fide sense.
C-EZ, or F, or in Part II or III of
Management decisions that may count
1. Whether your rental of the Schedule E. See Publicly Traded
as active participation include:
Partnerships (PTPs) beginning on page
property is a trade or business activity
11. For trade or business activities that
• Approving new tenants,
(see Trade or Business Activities on
are significant participation passive
• Deciding on rental terms,
this page) and, if so,
activities (defined on page 4), see Pub.
• Approving capital or repair
2. Whether you materially expenditures, and
925 for how to report their income or
participated in the activity for the tax
• Other similar decisions.
year (see Material Participation on
page 4). The maximum special allowance is:
Special Allowance for • $25,000 for single individuals and
• If the activity is a trade or business married individuals filing a joint return
activity in which you did not materially Rental Real Estate for the tax year.
participate, enter the income and losses • $12,500 for married individuals who
from the activity on Worksheet 3. Activities file separate returns for the tax year
• If the activity is a trade or business Active participation. If you actively and lived apart from their spouses at all
activity in which you did materially participated in a passive rental real times during the tax year.
participate, report any income or loss estate activity, you may be able to • $25,000 for a qualifying estate
from the activity on the forms or deduct up to $25,000 of loss from the reduced by the special allowance for
schedules normally used. activity from your nonpassive income. which the surviving spouse qualified.
If the rental activity did not meet any This special allowance is an exception Modified adjusted gross income
of the five exceptions, it is generally a to the general rule disallowing losses in limitation. If your modified adjusted
passive activity. However, special rules excess of income from passive gross income (see the instructions for
apply if you conduct the rental activity activities. line 7 on page 8) is $100,000 or less
Instructions for Form 8582 (2009) -3-
($50,000 or less if married filing appointment books, calendars, or Test for a spouse. Participation by
separately), your loss is deductible up narrative summaries. your spouse during the tax year in an
to the amount of the maximum special Tests for individuals. You materially activity you own may be counted as
allowance referred to in the preceding participated for the tax year in an your participation in the activity even if
paragraph. activity if you satisfy at least one of the your spouse did not own an interest in
If your modified adjusted gross following tests. the activity and whether or not you and
income is more than $100,000 ($50,000 your spouse file a joint return for the tax
1. You participated in the activity for year.
if married filing separately) but less than more than 500 hours.
$150,000 ($75,000 if married filing 2. Your participation in the activity Tests for investors. Work done as an
separately), your special allowance is for the tax year was substantially all of investor in an activity is not treated as
limited to 50% of the difference the participation in the activity of all participation unless you were directly
between $150,000 ($75,000 if married individuals (including individuals who involved in the day-to-day management
filing separately) and your modified did not own any interest in the activity) or operations of the activity. For
adjusted gross income. for the year. purposes of this test, work done as an
3. You participated in the activity for investor includes:
Generally, if your modified adjusted
gross income is $150,000 or more more than 100 hours during the tax 1. Studying and reviewing financial
($75,000 or more if married filing year, and you participated at least as statements or reports on operations of
separately), there is no special much as any other individual (including the activity.
allowance. individuals who did not own any interest 2. Preparing or compiling
in the activity) for the year. summaries or analyses of the finances
If you qualify under the active 4. The activity is a significant or operations of the activity for your
participation rules, use Worksheet 1 participation activity for the tax year, own use.
(see page 7). and you participated in all significant 3. Monitoring the finances or
Commercial revitalization deduction participation activities during the year operations of the activity in a
(CRD). The special $25,000 allowance for more than 500 hours. nonmanagerial capacity.
for the CRD from rental real estate A significant participation activity is
activities is not subject to the active any trade or business activity in which Special rules for limited partners. If
participation rules or modified adjusted you participated for more than 100 you were a limited partner in an activity,
gross income limits discussed earlier. hours during the year and in which you you generally did not materially
The $25,000 allowance must first be did not materially participate under any participate in the activity. You did
applied to losses from rental real estate of the material participation tests (other materially participate in the activity,
activities with active participation, than this fourth test). however, if you met material
figured without regard to the CRD (see 5. You materially participated in the participation test 1, 5, or 6 (see Tests
Part II). Any remaining portion of the activity for any 5 (whether or not for individuals on this page) for the tax
$25,000 allowance is available for the consecutive) of the 10 immediately year.
CRD from rental real estate activities preceding tax years. However, for purposes of the
(see Part III). See the instructions for 6. The activity is a personal service material participation tests, you are not
Worksheet 2 on page 8. For general activity in which you materially treated as a limited partner if you also
information about the CRD, see Pub. participated for any 3 (whether or not were a general partner in the
954, Tax Incentives for Distressed consecutive) preceding tax years. partnership at all times during the
Communities, and section 1400I. An activity is a personal service partnership’s tax year ending with or
activity if it involves the performance of within your tax year (or, if shorter,
Material Participation personal services in the fields of health, during the portion of the partnership’s
law, engineering, architecture, tax year in which you directly or
For the material participation tests listed indirectly owned your limited partner
below, participation generally includes accounting, actuarial science,
performing arts, consulting, or in any interest).
any work done in connection with an
activity if you owned an interest in the other trade or business in which capital A limited partner’s share of an
activity at the time you did the work. is not a material income-producing electing large partnership’s taxable
The capacity in which you did the work factor. income or loss from all trade or
does not matter. However, work is not 7. Based on all the facts and business and rental activities is treated
participation if: circumstances, you participated in the as income or loss from the conduct of a
• It is not work that an owner would activity on a regular, continuous, and single passive trade or business
customarily do in the same type of substantial basis during the tax year. activity.
activity, and You did not materially participate in Special rules for certain retired or
• One of your main reasons for doing the activity under this seventh test, disabled farmers and surviving
the work was to avoid the disallowance however, if you participated in the spouses of farmers. Certain retired
of losses or credits from the activity activity for 100 hours or less during the or disabled farmers and surviving
under the passive activity rules. tax year. spouses of farmers are treated as
Proof of participation. You may Your participation in managing the materially participating in a farming
prove your participation in an activity by activity does not count in determining activity if the real property used in the
any reasonable means. You do not whether you materially participated activity would meet the estate tax rules
have to maintain contemporaneous under this test if: for special valuation of farm property
daily time reports, logs, or similar a. Any person (except you) received passed from a qualifying decedent. See
documents if you can establish your compensation for performing services Temporary Regulations section
participation by other reasonable in the management of the activity, or 1.469-5T(h)(2).
means. For this purpose, reasonable b. Any individual spent more hours Estates and trusts. The PAL
means include, but are not limited to, during the tax year performing services limitations apply in figuring the
identifying services performed over a in the management of the activity than distributable net income and taxable
period of time and the approximate you did (regardless of whether the income of an estate or trust. The rules
number of hours spent performing the individual was compensated for the for determining material participation for
services during that period, based on management services). this purpose have not yet been issued.
-4- Instructions for Form 8582 (2009)
2. An activity involving the rental of The partnership or S corporation
Grouping of Activities real property with an activity involving ! does not have a record of any
Generally, one or more trade or the rental of personal property (except CAUTION prior year unallowed losses from
business activities or rental activities personal property provided in the passive activities of the partnership
may be treated as a single activity if the connection with the real property or vice or S corporation. If you had prior year
activities make up an appropriate versa). unallowed losses from these activities,
economic unit for the measurement of 3. Any activity with another activity they can be found in column (c) of your
gain or loss under the passive activity in a different type of business and in 2008 Worksheet 5.
rules. which you hold an interest as a limited
Whether activities make up an partner or as a limited entrepreneur (as Self-Charged Interest
appropriate economic unit depends on defined in section 464(e)(2)) if that Certain self-charged interest income or
all the relevant facts and other activity engages in holding, deductions may be treated as passive
circumstances. The factors given the producing, or distributing motion picture activity gross income or passive activity
greatest weight in determining whether films or videotapes; farming; leasing deductions if the loan proceeds are
activities make up an appropriate section 1245 property; or exploring for used in a passive activity. Generally,
economic unit are: or exploiting oil and gas resources or self-charged interest income and
1. Similarities and differences in geothermal deposits. deductions result from loans between
types of trades or businesses, you and a partnership or S corporation
2. The extent of common control, Activities conducted through in which you had a direct or indirect
3. The extent of common partnerships, S corporations, and C ownership interest. This includes both
ownership, corporations subject to section 469. loans you made to the partnership or
4. Geographical location, and Once a partnership or corporation S corporation and loans the partnership
5. Interdependencies between or determines its activities under these or S corporation made to you. It also
among the activities. rules, a partner or shareholder may use includes loans from one partnership or
these rules to group those activities S corporation to another partnership or
Example. You have a significant with: S corporation if each owner in the
ownership interest in a bakery and a • Each other, borrowing entity has the same
movie theater in Baltimore and in a • Activities conducted directly by the proportional ownership interest in the
bakery and a movie theater in partner or shareholder, or lending entity. The self-charged interest
rules do not apply to your interest in a
Philadelphia. Depending on all the • Activities conducted through other partnership or S corporation if the entity
relevant facts and circumstances, there partnerships and corporations.
may be more than one reasonable made an election under Regulations
method for grouping your activities. For A partner or shareholder may not section 1.469-7(g) to avoid the
instance, the following groupings may treat as separate activities those application of these rules. For more
or may not be permissible: activities grouped together by the details on the self-charged interest
• A single activity, partnership or corporation. rules, see Regulations section 1.469-7.
• A movie theater activity and a bakery
activity, Passive Activity Income
• A Baltimore activity and a Passive Activity Income To figure your overall gain or loss from
Philadelphia activity, or all passive activities or any passive
• Four separate activities. and Deductions activity, take into account only passive
Take into account only passive activity activity income. Do not enter income
Once you choose a grouping under income and passive activity deductions that is not passive activity income on
these rules, you must continue using to figure your net income or net loss Form 8582 or the worksheets.
that grouping in later tax years unless a from all passive activities or any
material change in the facts and Passive activity income includes all
passive activity. income from passive activities,
circumstances makes it clearly
inappropriate. including (with certain exceptions
If your passive activity is reported on
described in Temporary Regulations
The IRS may regroup your activities Schedule C, C-EZ, E, or F, and the
section 1.469-2T(c)(2) and Regulations
if your grouping fails to reflect one or activity has no prior year unallowed
section 1.469-2(c)(2)) gain from the
more appropriate economic units and losses or any gain or loss from the
disposition of an interest in a passive
one of the primary purposes of your disposition of assets or an interest in
activity or of property used in a passive
grouping is to avoid the passive activity the activity, take into account only the
activity at the time of the disposition.
limitations. passive activity income and passive
activity deductions from the activity to Passive activity income does not
Limitation on grouping certain
figure the amount to enter on Form include the following.
activities. The following activities may
not be grouped together. 8582 and the worksheets. • Income from an activity that is not a
1. A rental activity with a trade or If you own an interest in a passive • Portfolio income, including interest
business activity unless the activities activity through a partnership or an (other than self-charged interest treated
being grouped together make up an S corporation, the partnership or as passive activity income), dividends,
appropriate economic unit and: S corporation will generally provide you annuities, and royalties not derived in
a. The rental activity is insubstantial with the net income or net loss from the the ordinary course of a trade or
relative to the trade or business activity passive activity. If, however, the business, and gain or loss from the
or vice versa, or partnership or S corporation must state disposition of property that produces
b. Each owner of the trade or an item of gross income or deduction portfolio income or is held for
business activity has the same separately to you, and the gross investment (see section 163(d)(5)). See
proportionate ownership interest in the income or deduction is passive activity Temporary Regulations section
rental activity. If so, the portion of the gross income or a passive activity 1.469-2T(c)(3).
rental activity involving the rental of deduction (respectively), include that • Alaska Permanent Fund dividends.
property used in the trade or business amount in the net income or net loss • Personal service income, including
activity may be grouped with the trade entered on Form 8582 and the salaries, wages, commissions,
or business activity. worksheets. self-employment income from trade or
Instructions for Form 8582 (2009) -5-
business activities in which you Income from the following sources than passive activities. See Temporary
materially participated for the tax year, may be subject to the net income Regulations section 1.469-2T(d)(7).
deferred compensation, taxable social recharacterization rules. • Deductions for losses from fire,
security and other retirement benefits, • Significant participation passive storm, shipwreck, or other casualty or
and payments from partnerships to activities defined on page 4. from theft if losses similar in cause and
partners for personal services. See • Rental of property if less than 30% of severity do not recur regularly in the
Temporary Regulations section the unadjusted basis of the property is activity.
1.469-2T(c)(4). subject to depreciation. • The deduction allowed for one-half of
• Income from positive section 481 • Passive equity-financed lending self-employment taxes.
adjustments allocated to activities other activities.
than passive activities. See Temporary • Rental of property incidental to a Former Passive
Regulations section 1.469-2T(c)(5). development activity.
• Income or gain from investments of • Rental of property to a nonpassive Activities
working capital. activity. A former passive activity is any activity
• Income from an oil or gas property if • Acquisition of an interest in a that was a passive activity in a prior tax
pass-through entity that licenses year but is not a passive activity in the
you treated any loss from a working intangible property.
interest in the property for any tax year current tax year. A prior year unallowed
beginning after 1986 as a nonpassive loss from a former passive activity is
loss under the rule excluding working
Passive Activity Deductions allowed to the extent of current year
interests in oil and gas wells from To figure your overall gain or overall income from the activity.
passive activities (see item 3 under loss from all passive activities or any
passive activity, take into account only If current year net income from the
Activities That Are Not Passive activity is less than the prior year
Activities on page 2). See Regulations passive activity deductions.
unallowed loss, enter the prior year
section 1.469-2(c)(6). Passive activity deductions include unallowed loss and any current year
• Any income from intangible property all deductions from activities that are net income from the activity on Form
if your personal efforts significantly passive activities for the current tax 8582 and the applicable worksheets.
contributed to the creation of the year and all deductions from passive
activities that were disallowed under the If current year net income from the
property. activity is more than or equal to the
• Any income treated as not from a PAL rules in prior tax years and carried
prior year unallowed loss from the
passive activity under Temporary forward to the current tax year. See
Regulations section 1.469-1(f)(4). activity, report the income and loss on
Regulations section 1.469-2T(f) and the forms and schedules normally used;
Regulations section 1.469-2(f). See Passive activity deductions include do not enter the amounts on Form
Recharacterization of Passive Income losses from a disposition of property 8582.
below. used in a passive activity at the time of
• Overall gain from any interest in a the disposition and losses from a
If the activity has a net loss for the
PTP (see item 2 under Special current year, enter the prior year
disposition of less than your entire
Instructions for PTPs beginning on unallowed loss (but not the current year
interest in a passive activity. See
page 11). loss) on Form 8582 and the applicable
Dispositions on this page for the
• State, local, and foreign income tax treatment of losses upon disposition of
refunds. your entire interest in an activity. To report a disposition of a former
• Income from a covenant not to Passive activity deductions do not
passive activity, follow the rules below
compete. under Dispositions.
include the following.
• Any reimbursement of a casualty or • Deductions for expenses (other than
theft loss included in income as interest expense) that are clearly and Dispositions
recovery of all or part of a prior year directly allocable to portfolio income.
loss deduction if the deduction for the • Qualified home mortgage interest, Disposition of an Entire
loss was not treated as a passive capitalized interest expenses, and other Interest
activity deduction. interest expenses (except self-charged
• Cancellation of debt income to the interest treated as a passive activity If you disposed of your entire interest in
extent that at the time the debt was deduction (discussed on page 5) and a passive activity or a former passive
discharged, the debt was not properly interest expenses properly allocable to activity to an unrelated person in a fully
allocable under Temporary Regulations passive activities). taxable transaction during the tax year,
section 1.163-8T to passive activities. • Losses from dispositions of property your losses allocable to the activity for
that produce portfolio income or the year are not limited by the PAL
property held for investment. rules.
• State, local, and foreign income A fully taxable transaction is a
Passive Income taxes. transaction in which you recognize all
Certain income from passive activities • Miscellaneous itemized deductions realized gain or loss.
must be recharacterized and excluded that may be disallowed under
from passive activity income. The section 67. If you are using the installment
amount of income recharacterized • Charitable contribution deductions. method to report this kind of
equals the net income from the sources • Net operating loss deductions, disposition, figure the loss for the
given below. If during the tax year you percentage depletion carryovers under current year that is not limited by the
received net income from any of these section 613A(d), and capital loss PAL rules by multiplying your overall
sources (either directly or through a carryovers. loss (which does not include losses
partnership or an S corporation), see • Deductions and losses that would allowed in prior years) by the following
Pub. 925 to find out how to report net have been allowed for tax years fraction:
income or loss from these sources. For beginning before 1987, but for basis or
more information, see Temporary Gain recognized in the current year
Regulations section 1.469-2T(f) and • Net negative section 481 Unrecognized gain as of the
Regulations section 1.469-2(f). adjustments allocated to activities other beginning of the current year
-6- Instructions for Form 8582 (2009)
A partner in a PTP is not treated as the current year loss of $2,800 in • Worksheet 3 is used for all other
having disposed of an entire interest in column (b), and the prior year passive activities.
an activity of a PTP until there is an unallowed loss of $12,650 in column See Pub. 925 for examples showing
entire disposition of the partner’s (c). how to complete the worksheets.
interest in the PTP. Example 2. Activity with overall
loss. You sell your entire interest in Worksheet 1
Reporting an Entire an oil and gas limited partnership that Individuals and qualifying estates who
Disposition on Schedule D or was your only passive activity for a gain actively participated in rental real estate
Form 4797 of $2,000. You have a current year activities must include the income or
If you completely dispose of your entire Schedule E loss of $3,330 and a loss from those activities in Worksheet
interest in a passive activity or a former Schedule E prior year unallowed loss of 1 to figure the amounts to enter on lines
passive activity, you may have to report $1,115. 1a through 1c of Form 8582. Do not
net income or loss and prior year Because you have an overall loss of include any commercial revitalization
unallowed losses from the activity. All $2,445 after combining the gain and deductions (CRDs) from these activities
the net income and losses are reported losses, none of the amounts are in the net income or loss reported in
on the forms and schedules normally entered on Worksheet 3 or on Form Worksheet 1.
used. 8582. Do not enter a prior year unallowed
Combine all income and losses You enter the net loss plus the prior loss in column (c) of Worksheet 1
(including any prior year unallowed year unallowed loss ($3,330 + $1,115 = unless you actively participated in the
losses) from the activity for the tax year $4,445) on Schedule E, Part II, column activity in both the year the loss arose
to see if you have an overall gain or (h), and the $2,000 gain on the sale on and the current tax year. If you did not
loss. Schedule D, in either Part I or Part II, actively participate in both years, enter
depending on how long you held the the prior year unallowed loss in column
If you have an overall gain and you (c) of Worksheet 3.
have other passive activities to report partnership interest.
on Form 8582, include the income, Married individuals who file
Disposition of Less Than an
losses, and prior year unallowed losses
! separate returns and lived with
CAUTION their spouses at any time during
on Worksheet 1, 2, or 3.
If you have an overall gain and this Gains and losses from the disposition the tax year do not qualify under the
is your only passive activity or a former of less than an entire interest in an active participation rule and must use
passive activity, report all income and activity are treated as part of the net Worksheet 3 instead of Worksheet 1.
losses (including any prior year income or net loss from the activity for Column (a). Enter the current year net
unallowed losses) on the forms and the current year. income from each activity. Enter the
schedules normally used and do not A disposition of less than total of column (a) on line 1a of Form
use Form 8582. ! substantially all of an entire
CAUTION interest does not trigger the Example. A Schedule E rental
If you have an overall loss when you
combine the income and losses, do not allowance of prior year unallowed activity has current year profit of $5,000
use the worksheets or Form 8582 for losses. and a Form 4797 gain of $2,000. You
the activity. All losses (including prior Disposition of substantially all of an enter $7,000 in column (a).
year unallowed losses) are allowed in activity. You may treat the disposition Column (b). Enter the current year net
full. Report the income and losses on of substantially all of an activity as a loss for each activity. Do not enter any
the forms and schedules normally used. separate activity if you can prove with prior year unallowed losses in this
An overall loss from an entire reasonable certainty: column. Enter the total of column (b) on
disposition of a passive activity is a 1. The prior year unallowed losses, line 1b of Form 8582.
nonpassive loss if you have an if any, allocable to the part of the If an activity has net income on one
aggregate loss from all other passive activity disposed of, and form or schedule and a net loss on
activities. When figuring your modified 2. The net income or loss for the another form or schedule, report the net
adjusted gross income for line 7 of year of disposition allocable to the part amounts separately in columns (a) and
Form 8582, be sure to take into of the activity disposed of. (b) of Worksheet 1.
account the overall loss from the Example. A Schedule E rental
disposition of the activity. activity has current year income of
Example 1. Activity with overall $1,000 on line 22 of Schedule E and a
gain. You sell your entire interest in a Specific Instructions current year Form 4797 loss of $4,500.
rental real estate activity in which you You enter $1,000 in column (a) and
actively participated for a gain of ($4,500) in column (b).
$15,525. $7,300 of the gain is section
Part I—2009 Passive Column (c). Enter the prior year
1231 gain reported on Form 4797, Activity Loss unallowed losses for each activity. You
Part I, and $8,225 is ordinary recapture Use Part I to combine the net income find these amounts on Worksheet 5,
income reported on Form 4797, Part II. and net loss from all passive activities column (c), of your 2008 Form 8582.
On line 23 of Schedule E (Form 1040), to determine if you have a passive Enter the total of column (c) from your
you report a total loss of $15,450, activity loss (PAL) for 2009. Use 2009 Worksheet 1 on line 1c of Form
which includes a current year $2,800 Worksheets 1, 2, and 3 to determine 8582.
net loss and a $12,650 prior year the entries for lines 1 – 3 of Part I, as Columns (d) and (e). Combine
unallowed loss. You have an overall follows. income and losses in columns (a)
gain from the disposition ($15,525 – • Worksheet 1 is used for rental real through (c) for each activity, and either
$15,450 = $75). estate activities with active enter the overall gain for the activity in
Because you had other passive participation. column (d) or enter the overall loss for
activities reportable on Form 8582, you • Worksheet 2 is used for commercial the activity in column (e). Do not enter
make the following entries on revitalization deductions (CRDs) from amounts from columns (d) and (e) on
Worksheet 1. You enter the $15,525 rental real estate activities (with or Form 8582. These amounts will be
gain on the disposition in column (a), without active participation). used when Form 8582 is completed to
Instructions for Form 8582 (2009) -7-
figure the loss allowed for the current column (d) or enter the overall loss for bonds used to pay higher education
year. the activity in column (e). Do not enter expenses,
amounts from columns (d) and (e) on • The exclusion of amounts received
Worksheet 2 Form 8582. These amounts will be under an employer’s adoption
Use Worksheet 2 to figure the amounts used when Form 8582 is completed to assistance program,
to enter on lines 2a and 2b for figure the loss allowed for the current • The student loan interest deduction,
commercial revitalization deductions year. or
(CRD) from rental real estate activities • The tuition and fees deduction.
(see Commercial revitalization
deduction (CRD) on page 4). Do not
Part II—Special Include in modified adjusted gross
income any portfolio income and
include the following amounts. Allowance for Rental expenses that are clearly and directly
• Income or other deductions from the
same activity. Instead, report any net Real Estate Activities allocable to portfolio income. Also
include any income that is treated as
income or net loss from the activity, With Active Participation nonpassive income, such as overall
except for the CRD, in Worksheet 1 if Use Part II to figure the maximum gain from a PTP and net income from
you actively participated in the activity amount of rental loss allowed if you an activity or item of property subject to
or in Worksheet 3 if you did not actively have a net loss from a rental real estate the recharacterization of passive
participate. activity with active participation. income rules. When figuring modified
• CRDs from passive activities other adjusted gross income, include any
than rental real estate activities. Enter all numbers in Part II as overall loss from the entire disposition
Instead, report these deductions as part positive amounts (that is, greater than of a passive activity (considered a
of the net income or loss from the zero). nonpassive loss).
passive activity in Worksheet 3. Example. Line 5 has a loss of
Column (a). Enter the current year Example. Your adjusted gross
$42,000 (reported as a positive income on line 37 of Form 1040 is
CRD from each rental real estate amount) and line 9 is $25,000. You
activity. Enter the total of column (a) on $92,000, and you have taxable social
enter $25,000 on line 10 (the smaller of security benefits of $5,500 on line 20b.
line 2a of Form 8582. line 5 or line 9, both treated as positive Your modified adjusted gross income is
Column (b). Enter the unallowed amounts). $86,500 ($92,000 – $5,500).
CRDs from the prior year for each
rental real estate activity. Enter the total Married persons filing separate Line 9. Do not enter more than
of column (b) on line 2b of Form 8582. ! returns who lived with their
CAUTION spouses at any time during the
$12,500 on line 9 if you are married
filing a separate return and you and
Column (c). Combine the amounts in year are not eligible for the special your spouse lived apart at all times
columns (a) and (b) for each activity allowance. They must enter -0- on line during the year.
and enter the overall loss for the activity 10 and go to line 15.
in column (c). Do not enter amounts
from column (c) on Form 8582. These Line 5. Enter on line 5 the smaller of Part III—Special
amounts will be used when Form 8582 the loss on line 1d or the loss on line 4.
is completed to figure the loss allowed
Example. Line 1d has a loss of
for the current year. $3,000, line 2c is zero, and line 3d has Commercial
a gain of $100. The combined loss on
Worksheet 3 line 4 is $2,900. You enter $2,900 as a Revitalization
Use Worksheet 3 to figure the amounts positive number on line 5 (the smaller Deductions From Rental
to enter on lines 3a through 3c for: of the loss on line 1d or the loss on
• Passive trade or business activities, line 4). Real Estate Activities
• Passive rental real estate activities Use Part III to figure the maximum
that do not qualify for the special Line 6. Married persons filing separate
returns who lived apart from their amount of commercial revitalization
allowance (but do not include CRDs deductions allowed if you have a
reported in Worksheet 2), and spouses at all times during the year
commercial revitalization deduction
• Rental activities other than rental real must enter $75,000 on line 6 instead of
from a rental real estate activity.
estate activities. $150,000.
Line 7. To figure modified adjusted Enter all numbers in Part III as
Column (a). Enter the current year positive amounts (that is, greater than
net income for each activity. Enter the gross income, combine all the amounts
used to figure adjusted gross income zero.)
total of column (a) on line 3a of Form
8582. (See the example under Column except do not take into account: Married persons filing separate
• Passive income or loss included on
(a) for Worksheet 1, on page 7.)
Form 8582, ! returns who lived with their
CAUTION spouses at any time during the
Column (b). Enter the current year net
loss for each activity. Enter the total of
• Any rental real estate loss allowed to year are not eligible for the special
real estate professionals (defined under allowance. They must enter -0- on line
column (b) on line 3b of Form 8582.
Activities That Are Not Passive 14 and go to line 15.
(See the example under Column (b) for
Activities on page 2),
Worksheet 1, on page 7.)
• Any overall loss from a PTP, Line 11. Enter $12,500 (reduced by
Column (c). Enter the unallowed • The taxable amount of social security the amount, if any, on line 10) on line
losses for the prior years for each and tier 1 railroad retirement benefits, 11 if you are married filing a separate
activity. You find these amounts on • The deduction allowed under section return and you and your spouse lived
Worksheet 5, column (c), of your 2008 219 for contributions to IRAs and apart at all times during the year.
Form 8582. Enter the total of column certain other qualified retirement plans,
(c) from your 2009 Worksheet 3 on • The domestic production activities Part IV—Total Losses
line 3c of Form 8582. deduction,
Columns (d) and (e). Combine • The deduction allowed for one-half of Allowed
income and losses in columns (a) self-employment taxes, Use Part IV to figure the amount of the
through (c) for each activity, and either • The exclusion from income of interest PAL (as determined in Part I) allowed
enter the overall gain for the activity in from series EE and I U.S. savings for 2009 from all passive activities.
-8- Instructions for Form 8582 (2009)
Line 16. Use the worksheets on Form • If you entered an amount on line 14, Column (a). Enter the amounts, if any,
8582 and the following instructions for list on Worksheet 4 all activities with an from column (d) of Worksheet 4 (from
those worksheets to figure the overall loss in column (c) of column (e) of Worksheet 1 or column
unallowed loss to be carried forward Worksheet 2. (c) of Worksheet 2 if you did not have
and the allowed loss to report on your • If you entered amounts on both lines to complete Worksheet 4). Also enter
forms and schedules for 2009. 10 and 14 of Form 8582, you must the losses, if any, from column (e) of
complete two separate Worksheets 4. Worksheet 3.
Worksheets 1, 2, and 3 For the second worksheet, you either Column (b). Divide each of the
Worksheets 1 and 3, columns (d) and may attach an extra copy of page 2 of individual losses shown in column (a)
(e), show whether an activity had an Form 8582 or your own schedule in the by the total of all the losses in column
overall gain or loss. Worksheet 2, same format as Worksheet 4. On the (a) and enter this ratio for each activity
column (c), shows the overall loss for first Worksheet 4, list all activities with in column (b). The total of all the ratios
CRDs from rental real estate activities. an overall loss in column (e) of must equal 1.00.
If you have activities that show overall Worksheet 1. On the second Column (c). Complete the following
gain in column (d) of Worksheet 1 or 3, Worksheet 4, list all activities with an computation.
report all the income and losses listed overall loss in column (c) of
in columns (a), (b), and (c) for those Worksheet 2.
activities on the proper forms and A. Enter as a positive amount
Column (a). Enter the overall loss line 4 of Form 8582 . . . . . . .
schedules. from column (e) of Worksheet 1 or
If you have activities that show an column (c) of Worksheet 2 for each B. Add lines 10 and 14 of
activity. Form 8582 . . . . . . . . . . . . .
overall loss in column (e) of Worksheet
1 or 3 or column (c) of Worksheet 2, Column (b). Divide each of the C. Subtract line B from line A . .
you must allocate your allowed loss on individual losses shown in column (a)
line 16 of Form 8582 to those activities by the total of all the losses in column Multiply each ratio in column (b) by
by completing Worksheets 4, 5, and 6 (a) and enter this ratio for each activity the amount on line C above, and enter
or 7. in column (b). The total of all the ratios the result in column (c).
Complete Worksheet 4 only if you in column (b) must equal 1.00.
entered an amount (other than zero) on Column (c). Multiply each ratio in Worksheets 6 and 7
line 10 or 14 of Form 8582. Otherwise, column (b) by the amount on line 10 or These worksheets allocate your
skip Worksheet 4 and complete line 14 of Form 8582, and enter the unallowed and allowed losses for each
Worksheet 5 for all activities in results in column (c). The total of activity.
Worksheets 1 or 3 that have overall column (c) must be the same as line 10 If you have losses from any activity
losses in column (e) and all activities in or line 14 of Form 8582. that are reported on two or more
Worksheet 2. Column (c) total is the same as different forms or schedules, use
column (a) total. If the total losses in Worksheet 7 instead of Worksheet 6 for
Worksheet 4 column (c) are the same as those in that activity.
Use Worksheet 4 to allocate the special column (a), the losses in Worksheets 1 Also use Worksheet 7 instead of
allowance on line 10 or line 14 of Form and 2 are allowed in full and are not Worksheet 6 for any activity with two or
8582 among your rental real estate carried over to Worksheet 5. Report all more transactions that are reported on
activities. amounts in columns (a), (b), and (c) of the same form or schedule but must be
In the first column of Worksheet 4, Worksheet 1 and columns (a) and (b) of separately identified for tax purposes.
enter the name of each activity. In the Worksheet 2 on the proper forms and Transactions that must be separately
second column, enter the form or schedules. identified include capital losses that are
schedule and line number on which the Column (c) total is less than 28% rate losses and those that are not.
loss will be reported. column (a) total. If the total losses in Note. 28% rate gain or loss includes
Example. You receive a Schedule column (c) are less than the total losses all collectibles gains and deductible
K-1 from partnership P that reports in column (a), complete column (d). long-term losses and section 1202 gain
losses from two rental real estate Column (d). Subtract column (c) from on the sale of qualified small business
activities, Activity X and Activity Y. The column (a) and enter the results in stock. See the instructions for Schedule
losses from partnership P are reported column (d). Also enter the amounts D (Form 1040) for details, including the
on line 28A of Schedule E. In the first from column (d) of Worksheet 4 in definitions of “collectibles gains and
two columns of Worksheet 4, enter: column (a) of Worksheet 5. losses” and “section 1202 gain.”
Name of Activity Form or Schedule Worksheet 5 Worksheet 6
Complete Worksheet 5 if any activities Use Worksheet 6 for any activity listed
Activity X Sch E, line 28A
have an overall loss in column (e) of in Worksheet 5 if all the loss from that
Activity Y Sch E, line 28A Worksheet 3 or losses in column (d) of activity is reported on one form or
Worksheet 4 (in column (e) of schedule and no transactions need to
If the loss from an activity is reported in Worksheet 1 or column (c) of be identified separately (as discussed
more than one place, identify both Worksheet 2 if you did not have to above).
locations in the second column (for complete Worksheet 4). Example. Use Worksheet 6 if all
example, Sch E, line 28A/Form 4797, On Worksheet 5, enter the name of the loss from an activity is reported on
line 2). If you need additional space, each activity and the form or schedule Schedule E, even though part of the
show this information on an attached and line number on which the loss will loss is a current year Schedule E loss
statement. be reported. See the example for and part of it is from a Schedule E prior
Enter all activities with overall losses Worksheet 4. Identify any deduction year unallowed loss.
from Worksheets 1 and 2 as follows. from Worksheet 2 on a separate line On Worksheet 6, enter the name of
• If you entered an amount on line 10, (even if the amount is from an activity each activity and the form or schedule
list on Worksheet 4 all activities with an also shown on Worksheet 1 or 3) and and line number on which the loss is
overall loss in column (e) of add “CRD” after the name of the reported. See the example for
Worksheet 1. activity. Worksheet 4. Identify each CRD from
Instructions for Form 8582 (2009) -9-
Worksheet 5 on a separate line and from the activity that is reported on the Worksheet 3
add “CRD” after the name of the same form or, in the case of Schedule
activity. D and Form 4797, the same part. Activity I has an overall loss of
Column (a). For each activity entered $4,000 (current year long-term capital
If you have a Schedule D 28% rate
in Worksheet 6, enter the net loss plus loss of $3,000 and a prior year
loss and a Schedule D non-28%-rate
the prior year unallowed loss for the unallowed long-term capital loss of
loss, see Example of Schedule D (Form
activity. Figure this amount by adding 1040) transactions on this page before $1,000). Activity II has an overall gain
the losses in columns (b) and (c) of completing Worksheet 7. of $870 (current year net income of
Worksheets 1 and 3 or enter the loss $1,100 less a current year long-term
from column (c) of Worksheet 2. Line 1b, column (a). Enter any net capital loss of $230). Line 16 of Form
income from the activity that is reported 8582 shows an allowed loss of $1,100.
Column (b). For each activity entered on the same form or schedule (or on
in Worksheet 6, enter the amount from the same part of the same form or Since Activity II has an overall gain,
column (c) of Worksheet 5 for the schedule) as the loss on line 1a, the amounts shown in columns (a) and
activity. These are your unallowed column (a). (b) of Worksheet 3 for that activity are
losses for 2009. Keep a record of these
amounts so the losses can be used to Example. You enter a prior year reported on the proper forms and
figure your PAL next year. unallowed loss from Form 4797, Part I, schedules and are not shown on any
on line 1a. If the activity has a current other worksheet.
Column (c). Subtract column (b) from
year Form 4797, Part I, gain, enter the
column (a). These are your allowed Worksheet 5
gain on line 1b, column (a). If the
losses for 2009. Report the amounts in
activity does not have a Form 4797,
this column on the forms and schedules Activity I has an unallowed loss of
Part I, gain, enter -0- on line 1b, column
normally used. $3,130 (line 4 of Form 8582 ($3,130)
See the forms and schedules listed less the sum of lines 10 and 14 of Form
under How To Report Allowed Losses Line 1c, column (b). Subtract line 1b, 8582 (-0-) x 100%).
on page 11. Also, see Pub. 925 for an column (a), from line 1a, column (a),
extensive example of how to report and enter the result in column (b). If line Worksheet 7
passive income and losses on the 1b, column (a), is more than line 1a,
forms and schedules. column (a), enter -0- in column (b). This worksheet is used to figure the
Column (c). Divide each of the losses portion of the unallowed loss
Worksheet 7 entered in column (b) by the total of attributable to the 28% rate loss and
Use Worksheet 7 for any activity listed column (b) and enter the ratio in the portion attributable to the
in Worksheet 5 that has losses that are column (c). The total of this column non-28%-rate loss.
reported on two or more different forms must be 1.00.
and schedules or on different parts of The loss attributable to the 28% rate
the same form or schedule (for Column (d). Multiply the unallowed loss ($1,000) and the loss attributable
example, 28% rate and non-28%-rate loss for this activity, found in Worksheet to the non-28%-rate loss ($3,000) are
capital losses reported on Schedule D). 5, column (c), by each ratio in column separate entries in Worksheet 7. The
Worksheet 7 allocates the allowed and (c) of Worksheet 7. If -0- is entered in ratio of each loss to the total of the two
unallowed loss for the activity and column (b) of Worksheet 7, also enter losses is figured as follows. $1,000/
allocates the allowed loss to the -0- for that form or schedule in column $4,000 = .25. $3,000/$4,000 = .75.
different forms or schedules (or (d). Each of these ratios is multiplied by the
different parts of the same form or The amount in column (d) is the unallowed loss for Activity I, shown in
schedule) used to report the losses. unallowed loss for 2009. Keep a record column (c) of Worksheet 5 ($3,130).
Only losses that would cause a of this worksheet so you can use the
losses to figure your PAL next year. Unallowed losses for Activity I:
difference in tax liability if they were
reported on a different form or schedule Column (e). Subtract the amount in • 28% rate loss: .25 x $3,130 =
or on different parts of the same form or column (d) from the loss entered on line $782.50.
schedule are kept separate. Those 1a, column (a). This is the allowed loss • Non-28%-rate loss: .75 x $3,130 =
forms, schedules, and parts are: for 2009 to enter on the forms or $2,347.50.
• Schedules C, E, and F. schedules. The forms and schedules
• Schedule D (Parts I and II (28% rate you use must show the losses from this Allowed losses for Activity I:
losses and non-28%-rate losses)). column and the income, if any, for that • 28% rate loss: $1,000 − $782.50 =
Note. You must make a separate activity from column (a) of Worksheet 1 $217.50.
entry in Schedule D, Part I or Part II, for or Worksheet 3. • Non-28%-rate loss: $3,000 −
each transaction reported. See the Example of Schedule D (Form $2,347.50 = $652.50.
Instructions for Schedule D (Form 1040) transactions. The taxpayer had
1040). The total loss allowed for Activity I
the following Schedule D (Form 1040)
• Forms 4684 (Section B), 4797 transactions from passive activities in
($870) is entered in Part II of Schedule
(Parts I and II), and 4835. D (Form 1040). The 28% rate loss
($217.50) is entered on the 28% Rate
Use a separate copy of Worksheet 7 Activity I Gain Worksheet (see Schedule D
for each activity for which you have instructions for line 18). Keep a record
losses reported on two or more different A passive activity prior year
unallowed long-term capital loss (a 28% of the unallowed 28% rate and
forms or schedules or different parts of non-28%-rate losses to figure the PAL
the same form or schedule. rate loss) of $1,000 and a current year
long-term capital loss (a non-28%-rate for these transactions next year.
On Worksheet 7, enter the form or loss) of $3,000.
schedule and line number on the dotted See the forms and schedules listed
line above each line 1a (for example, Activity II under How To Report Allowed Losses
Schedule D, line 12, to report a 28% A current year collectibles loss (a on page 11. Also, see Pub. 925 for an
rate loss from a partnership). 28% rate loss) of $230 and net income extensive example of how to report
Line 1a, column (a). Enter the net of $1,100 from Schedule E (Form passive income and losses on the
loss plus any prior year unallowed loss 1040). forms and schedules.
-10- Instructions for Form 8582 (2009)
year unallowed Schedule C loss of Entire disposition with an overall
How To Report $6,000. The loss allowed for 2009 is loss. If you made an entire disposition
Allowed Losses $6,000. You enter a net loss of $1,000 of your interest in a passive activity and
on line 31 of Schedule C (the $5,000 that activity had an overall loss, none of
Line 4 is income. If line 4 of Form net profit for the year less the $6,000 the gains, if any, or losses were
8582 shows net income or zero, all the loss allowed for the year). To the left of entered on Form 8582 or the
losses in columns (b) and (c) of the entry space, you enter “PAL.” worksheets. However, all the gains and
Worksheets 1 and 3 and all the losses must be reported on the forms
deductions in columns (a) and (b) of See Schedule D and Form 4797
instructions on this page if you also had or schedules normally used. To the left
Worksheet 2 are allowed in full. Report of the entry space, enter “EDPA.”
the income and losses in columns (a), passive gains and losses from the sale
(b), and (c) of Worksheets 1 and 3 and of assets or of an interest in a passive Entire disposition with an overall
deductions in columns (a) and (b) of activity. gain. Gains and losses from this
Worksheet 2 on the forms and Schedule E, Part I. Enter the allowed activity were included on Form 8582 so
schedules normally used. loss from the worksheet on line 23 of that the gains might offset other PALs.
Line 16 is the same as the total of Schedule E. An activity that has net Report all the gains and losses on the
lines 1b, 1c, 2a, 2b, 3b, and 3c. In profit for the year and prior year forms and schedules normally used,
this case also, all the losses in columns unallowed losses will have net profit on and to the left of the entry space, enter
(b) and (c) of Worksheets 1 and 3 and line 22 and the allowed loss on line 23. “EDPA.”
all the deductions in columns (a) and The allowed loss on line 23 will include
the loss allowed to the extent of the net
(b) of Worksheet 2 are allowed in full.
Report the income and losses in profit. Line 24 of Schedule E will show Publicly Traded
columns (a), (b), and (c) of Worksheets total profit and line 25 will show total Partnerships (PTPs)
1 and 3 and deductions in columns (a) losses allowed (both passive and A PTP is a partnership whose interests
and (b) of Worksheet 2 on the forms nonpassive). Line 26 will show the total are traded on an established securities
and schedules normally used. net profit or loss. market or are readily tradable on a
Columns (a) and (c) of Worksheet 4 Schedule E, Parts II and III. Any net secondary market (or its substantial
are the same amount. In this case, all income shown on your Schedule K-1 equivalent).
the losses in columns (b) and (c) of that is passive income must be entered
Worksheet 1 and all the deductions in as passive income in the appropriate An established securities market
columns (a) and (b) of Worksheet 2 are column of Schedule E, Part II or III. includes any national securities
allowed in full. Report the income and Enter the passive loss allowed from exchange and any local exchange
losses in columns (a), (b), and (c) of Worksheet 6 or 7 in the appropriate registered under the Securities
Worksheet 1 and the deductions in column for passive losses. The passive Exchange Act of 1934 or exempted
columns (a) and (b) of Worksheet 2 on losses allowed include the loss allowed from registration because of the limited
the forms and schedules normally used. to the extent of any net income from the volume of transactions. It also includes
activity. Passive net income or loss any over-the-counter market.
Losses allowed in column (c) of
Worksheet 6. The amounts in column reportable on Schedule E, Part II, A secondary market generally exists
(c) of Worksheet 6 are the losses or includes any self-charged interest
if a person stands ready to make a
deductions allowed for 2009 for the income and deductions treated as
market in the interest. An interest is
activities listed in that worksheet. passive activity income and deductions.
treated as readily tradable if the interest
Report the loss allowed from column (c) See Self-Charged Interest on page 5.
is regularly quoted by persons, such as
of Worksheet 6 and the income, if any, See Schedule D and Form 4797 brokers or dealers, who are making a
for that activity from column (a) of instructions below if you also had market in the interest.
Worksheet 1 or 3, on the form or passive gains or losses from the sale of
schedule normally used. assets or of an interest in a passive The substantial equivalent of a
activity. secondary market exists if there is no
Losses allowed in column (e) of identifiable market maker, but holders
Worksheet 7. The amounts in column Form 4684, Section B. Any passive of interests have a readily available,
(e) of Worksheet 7 are the losses or activity gain from Form 4684 is regular, and ongoing opportunity to sell
deductions allowed for 2009 for the unchanged. It was used on Form 8582 or exchange interests through a public
activity listed on that worksheet. Report to determine allowable PALs. If you do means of obtaining or providing
the losses allowed from column (e) of not have passive losses on Form 4684, information on offers to buy, sell, or
Worksheet 7 and the income, if any, for complete Form 4684 and follow the exchange interests. Similarly, the
that activity from column (a) of instructions for that form for where to substantial equivalent of a secondary
Worksheet 1 or 3, on the forms or report the gain. market exists if prospective buyers and
schedules normally used. sellers have the opportunity to buy, sell,
If you have passive losses on Form
Schedules C and F, and Form 4835. 4684, cross through the amount you or exchange interests in a timeframe
Enter on the net profit or loss line of first entered on line 37, 38, 44a, 44b, or and with the regularity and continuity
your schedule or form the allowed 45 of that form, and enter the allowed that the existence of a market maker
passive loss from the worksheet. To the loss from the worksheet. To the left of would provide.
left of the entry space, enter “PAL.” the entry space, enter “PAL.”
If the net profit or loss line on your Schedule D and Form 4797. If you Special Instructions for PTPs
form or schedule shows net profit for sold assets from a passive activity or Section 469(k) provides that the
the year, reduce the net profit by the you sold an interest in your passive passive activity limitations must be
allowed loss from Worksheet 6 or 7, activity, all gains from the activity must applied separately to items from each
and enter the result on the net profit or be entered on the appropriate line of PTP. PALs from a PTP generally may
loss line. Schedule D or Form 4797. Identify the be used only to offset income or gain
Example. Schedule C shows net gain as “FPA.” Enter any allowed from passive activities of the same
profit for the year of $5,000 from a losses for Schedule D or Form 4797 on PTP. The special allowance (including
passive activity. The activity also has a the appropriate line, and to the left of CRDs) for rental real estate activities
Form 4797 gain of $2,500 and a prior the entry space, enter “PAL.” does not apply to PALs from a PTP.
Instructions for Form 8582 (2009) -11-
Passive activity loss rules for schedule or form you normally use the unallowed losses) allocable to the
partners in PTPs. Do not report portion of the loss equal to the income. activity for the year are not limited by
passive income, gains, or losses from a Report the income as passive income the passive loss rules. A fully taxable
PTP on Form 8582. Instead, use the on the form or schedule you normally transaction is one in which you
following rules to figure and report your use. recognize all your realized gain or loss.
income, gains, and losses from passive Example. You have a Schedule E Report the income and losses on the
activities you held through each PTP loss of $12,000 (current year losses forms and schedules normally used.
you owned during the tax year. plus prior year unallowed losses) and For rules on the disposition of an
1. Combine any current year Form 4797 gain of $7,200 from the entire interest reported using the
income, gains and losses, and any prior passive activities of a PTP. You report installment method, see Disposition of
year unallowed losses to see if you the $7,200 gain on the appropriate line an Entire Interest beginning on page 6.
have an overall loss from the PTP. of Form 4797. On Schedule E, Part II,
Include only the same types of income you report $7,200 of the losses as a Paperwork Reduction Act Notice.
and losses you would include to figure passive loss in column (f). You carry We ask for the information on this form
your net income or loss from a forward the unallowed loss of $4,800 to carry out the Internal Revenue laws
non-PTP passive activity. See Passive ($12,000 − $7,200). of the United States. You are required
Activity Income and Deductions on to give us the information. We need it to
If you have unallowed losses from
page 5. ensure that you are complying with
more than one activity of the PTP or
2. If you have an overall gain, the these laws and to allow us to figure and
from the same activity of the PTP that
net gain portion (total gain minus total collect the right amount of tax.
must be reported on different forms or
losses) is nonpassive income. schedules, allocate the unallowed You are not required to provide the
It is important to figure the losses on a pro rata basis to figure the information requested on a form that is
nonpassive income because it must be amount allowed for each activity or on subject to the Paperwork Reduction Act
included in modified adjusted gross each form or schedule. unless the form displays a valid OMB
income to figure the special allowance control number. Books or records
for active participation in a non-PTP To allocate and keep a record of relating to a form or its instructions
rental real estate activity on Form 8582. TIP the unallowed losses, use must be retained as long as their
Also, you may be able to include the Worksheets 5, 6, and 7 of Form contents may become material in the
nonpassive income in investment 8582. administration of any Internal Revenue
income when figuring your investment law. Generally, tax returns and return
List each activity of the PTP in
interest expense deduction. See Form information are confidential, as required
Worksheet 5. Enter the overall loss
4952, Investment Interest Expense by section 6103.
from each activity in column (a).
Deduction. Complete column (b) of Worksheet 5 The time needed to complete and
Report all gains and allowed losses according to its instructions. Multiply the file this form will vary depending on
from the activity on the forms or total unallowed loss from the PTP by individual circumstances. The
schedules normally used, and to the left each ratio in column (b) and enter the estimated burden for individual
of each entry space, enter “From PTP.” result in column (c) of Worksheet 5. taxpayers filing this form is approved
under OMB control number 1545-0074
Example. You have Schedule E Next, complete Worksheet 6 for
and is included in the estimates shown
income of $8,000 and a Form 4797 each activity listed in Worksheet 5 if all
in the instructions for their individual
prior year unallowed loss of $3,500 the loss from that activity is reported on
income tax return. The estimated
from the passive activities of a PTP. one form or schedule. Use Worksheet 7
burden for all other taxpayers who file
You have a $4,500 overall gain ($8,000 instead of Worksheet 6 for each activity
this form is shown below.
− $3,500) that is nonpassive income. with losses reported on two or more
On Schedule E, Part II, you report the different forms or schedules (or on
Recordkeeping . . . . . . . . 26 min.
$4,500 net gain as nonpassive income different parts of the same form or
in column (j). In column (g), you report schedule). Enter the net loss plus any Learning about the law or
the remaining Schedule E gain of prior year unallowed losses in column the form . . . . . . . . . . . . . 1 hr., 43 min.
$3,500 ($8,000 − $4,500) as passive (a) of Worksheet 6 (or Worksheet 7 if
Preparing the form . . . . . 1 hr., 43 min.
income. On the appropriate line of Form applicable). The losses in column (c) of
4797, you report the prior year Worksheet 6 (column (e) of Worksheet Copying, assembling,
unallowed loss of $3,500. You enter 7) are the allowed losses to report on and sending the form to
“From PTP” to the left of each entry your forms or schedules. Report these the IRS . . . . . . . . . . . . . . 48 min.
space. losses and any income from the PTP
3. If you have an overall loss (but on the forms and schedules normally If you have comments concerning
did not dispose of your entire interest in used. the accuracy of these time estimates or
the PTP to an unrelated person in a suggestions for making this form
4. If you have an overall loss and
fully taxable transaction during the simpler, we would be happy to hear
you disposed of your entire interest in
year), the losses are allowed only to the from you. See the instructions for the
the PTP to an unrelated person in a
extent of the income, and the excess tax return with which this form is filed.
fully taxable transaction during the year,
loss is carried forward to use in a future your losses (including prior year
year if you have income to offset it.
Report as a passive loss on the
-12- Instructions for Form 8582 (2009)