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in the activity, other than as a creditor, or

you performed as an employee are not

the tax year was not less than the

who is related, under section 465(b)(3), to

treated as performed in a real property

participation in the activity of any other

a person (other than you) having such an

trade or business unless you owned more

individual (including individuals who were

interest.

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

not owners of interests in the activity) for

To help you complete Form 6198, the

the capital or profits interest) in the

the tax year.

partnership should specify on an

employer.

4. The activity was a significant

attachment to Schedule K-1 your share of

3. Working interests in oil or gas wells

participation activity for the tax year, and

the total pre-1976 losses from a section

if you were a general partner.

you participated in all significant

465(c)(1) activity for which there existed a

4. The rental of a dwelling unit any

participation activities (including activities

corresponding amount of nonrecourse

partner used for personal purposes during

outside the partnership) during the year

liability at the end of the year in which the

the year for more than the greater of 14

for more than 500 hours. A significant

losses occurred. Also, you should get a

days or 10% of the number of days that

participation activity is any trade or

separate statement of income, expenses,

the residence was rented at fair rental

business activity in which you participated

etc., for each activity from the partnership.

value.

for more than 100 hours during the year

5. Activities of trading personal

and in which you did not materially

Passive Activity Limitations

property for the account of owners of

participate under any of the material

Section 469 provides rules that limit the

interests in the activities.

participation tests (other than this test 4).

deduction of certain losses and credits.

5. You materially participated in the

If you are an individual, an estate, or a

These rules apply to partners who:

activity for any 5 tax years (whether or not

•

trust, and you have a passive activity loss

Are individuals, estates, trusts, closely

consecutive) during the 10 tax years that

or credit, use Form 8582, Passive Activity

held corporations, or personal service

immediately precede the tax year.

Loss Limitations, to figure your allowable

corporations and

•

6. The activity was a personal service

passive losses and Form 8582-CR,

Have a passive activity loss or credit for

activity and you materially participated in

Passive Activity Credit Limitations, to

the tax year.

the activity for any 3 tax years (whether or

figure your allowable passive credits. For

Generally, passive activities include:

not consecutive) preceding the tax year.

a corporation, use Form 8810, Corporate

1. Trade or business activities in

A personal service activity involves the

Passive Activity Loss and Credit

which you did not materially participate

performance of personal services in the

Limitations. See the instructions for these

and

fields of health, law, engineering,

forms for more information.

2. Activities that meet the definition of

architecture, accounting, actuarial

If the partnership had more than one

rental activities under Temporary

science, performing arts, consulting, or

activity, it will attach a statement to your

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

any other trade or business in which

Schedule K-1 that identifies each activity

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

capital is not a material income-producing

(trade or business activity, rental real

factor.

Passive activities do not include:

estate activity, rental activity other than

7. Based on all the facts and

1. Trade or business activities in

rental real estate, etc.) and specifies the

circumstances, you participated in the

which you materially participated.

income (loss), deductions, and credits

activity on a regular, continuous, and

2. Rental real estate activities in which

from each activity.

substantial basis during the tax year.

you materially participated if you were a

Material participation. You must

“real estate professional” for the tax year.

determine if you materially participated (a)

Limited partners. If you are a limited

You were a real estate professional only

in each trade or business activity held

partner, you do not materially participate

if you met both of the following conditions:

through the partnership and (b) if you

in an activity unless you meet one of the

a. More than half of the personal

were a real estate professional (defined

tests in paragraphs 1, 5, or 6 above.

services you performed in trades or

above), in each rental real estate activity

businesses were performed in real

held through the partnership. All

Work counted toward material

property trades or businesses in which

determinations of material

participation. Generally, any work that

you materially participated and

participation are made based on your

you or your spouse does in connection

b. You performed more than 750

participation during the partnership’s

with an activity held through a partnership

hours of services in real property trades

tax year.

(where you own your partnership interest

or businesses in which you materially

at the time the work is done) is counted

Material participation standards for

participated.

toward material participation. However,

partners who are individuals are listed

work in connection with the activity is not

Note: For a closely held C corporation

below. Special rules apply to certain

counted toward material participation if

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

retired or disabled farmers and to the

either of the following applies.

above conditions are treated as met if

surviving spouses of farmers. See the

more than 50% of the corporation’s gross

Instructions for Form 8582 for details.

1. The work is not the type of work

receipts were from real property trades or

that owners of the activity would usually

Corporations should refer to the

businesses in which the corporation

do and one of the principal purposes of

Instructions for Form 8810 for the material

materially participated.

the work that you or your spouse does is

participation standards that apply to them.

to avoid the passive loss or credit

For purposes of this rule, each interest

Individuals (other than limited

limitations.

in rental real estate is a separate activity,

partners). If you are an individual (either

2. You do the work in your capacity as

unless you elect to treat all interests in

a general partner or a limited partner who

rental real estate as one activity. For

an investor and you are not directly

owned a general partnership interest at all

details on making this election, see the

involved in the day-to-day operations of

times during the tax year), you materially

Instructions for Schedule E (Form 1040).

the activity. Examples of work done as an

participated in an activity only if one or

investor that would not count toward

If you are married filing jointly, either

more of the following apply:

material participation include:

you or your spouse must separately meet

1. You participated in the activity for

both of the above conditions, without

a. Studying and reviewing financial

more than 500 hours during the tax year.

taking into account services performed by

statements or reports on operations of the

2. Your participation in the activity for

the other spouse.

activity.

the tax year constituted substantially all

b. Preparing or compiling summaries

A real property trade or business is

the participation in the activity of all

or analyses of the finances or operations

any real property development,

individuals (including individuals who are

of the activity for your own use.

redevelopment, construction,

not owners of interests in the activity).

reconstruction, acquisition, conversion,

3. You participated in the activity for

c. Monitoring the finances or

rental, operation, management, leasing,

more than 100 hours during the tax year,

operations of the activity in a

or brokerage trade or business. Services

and your participation in the activity for

nonmanagerial capacity.

-3-

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

Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Credits, Deductions, Etc. (For Partner'S Use Only) - 2003 Page 3

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