Partner'S Instructions For Schedule K-1 (Form 1065-B) - Partner'S Share Of Income (Loss) From An Electing Large Partnership (For Partner'S Use Only) - 2008 Page 4
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12Corporations should refer to the
avoid the passive loss or credit
qualifying estates), trusts, and
Instructions for Form 8810 for the material
limitations.
corporations cannot actively participate.
participation standards that apply to them.
2. You do the work in your capacity as
You are not considered to actively
an investor and you are not directly
participate in a rental real estate activity if
Individuals (other than limited
involved in the day-to-day operations of
at any time during the tax year your
partners). If you are an individual (either
the activity. Examples of work done as an
interest (including your spouse’s interest)
a general partner or a limited partner who
investor that would not count toward
in the activity was less than 10% (by
owned a general partnership interest at all
material participation include:
value) of all interests in the activity.
times during the tax year), you materially
a. Studying and reviewing financial
participated in an activity only if one or
Active participation is a less stringent
statements or reports on operations of the
more of the following apply.
requirement than material participation.
activity.
You may be treated as actively
1. You participated in the activity for
b. Preparing or compiling summaries
participating if you participated, for
more than 500 hours during the tax year.
or analyses of the finances or operations
example, in making management
2. Your participation in the activity for
of the activity for your own use.
decisions or arranging for others to
the tax year constituted substantially all
c. Monitoring the finances or
provide services (such as repairs) in a
the participation in the activity of all
operations of the activity in a
significant and bona fide sense.
individuals (including individuals who are
nonmanagerial capacity.
Management decisions that can count as
not owners of interests in the activity for
active participation include approving new
the tax year).
Effect of determination. Income
tenants, deciding rental terms, approving
3. You participated in the activity for
(loss), deductions, and credits from an
capital or repair expenditures, and other
more than 100 hours during the tax year,
activity are nonpassive if you determine
similar decisions.
and your participation in the activity for
that:
•
An estate is a qualifying estate if the
the tax year was not less than the
You materially participated in a trade or
decedent would have satisfied the active
participation in the activity of any other
business activity of the partnership or
•
participation requirement for the activity
individual (including individuals who were
You were a real estate professional in a
for the tax year the decedent died. A
not owners of interests in the activity) for
rental real estate activity of the
qualifying estate is treated as actively
the tax year.
partnership.
participating for tax years ending less
4. The activity was a significant
If you determine that you did not
than 2 years after the date of the
participation activity for the tax year, and
materially participate in a trade or
decedent’s death.
you participated in all significant
business activity of the partnership or if
participation activities (including activities
The maximum special allowance that
you have income (loss), deductions, or
outside the partnership) during the year
single individuals and married individuals
credits from a rental activity of the
for more than 500 hours. A significant
filing a joint return can qualify for is
partnership (other than a rental real
participation activity is any trade or
$25,000. The maximum is $12,500 for
estate activity in which you materially
business activity in which you participated
married individuals who file separate
participated as a real estate professional),
for more than 100 hours during the tax
returns and who live apart all times during
the amounts from that activity are
year and in which you did not materially
the year. The maximum special allowance
passive. Report passive income (losses),
participate under any of the material
for which an estate can qualify is $25,000
deductions, and credits as follows.
participation tests (other than this test 4).
reduced by the special allowance for
1. If you have an overall gain (the
5. You materially participated in the
which the surviving spouse qualifies.
excess of income over deductions and
activity for any 5 tax years (whether or not
If your modified adjusted gross income
losses, including any prior year unallowed
consecutive) during the 10 tax years that
(defined below) is $100,000 or less
loss) from a passive activity, report the
immediately precede the tax year.
($50,000 or less if married filing
income, deductions, and losses from the
6. The activity was a personal service
separately), your loss is deductible up to
activity as indicated in the instructions for
activity and you materially participated in
the amount of the maximum special
the boxes in which those items were
the activity for any 3 tax years (whether or
allowance referred to in the preceding
reported.
not consecutive) preceding the tax year.
paragraph. If your modified adjusted
2. If you have an overall loss (the
A personal service activity involves the
gross income is more than $100,000
excess of deductions and losses,
performance of personal services in the
(more than $50,000 if married filing
including any prior year unallowed loss,
fields of health, law, engineering,
separately), the special allowance is
over income) or credits from a passive
architecture, accounting, actuarial
limited to 50% of the difference between
activity, report the income, deductions,
science, performing arts, consulting, or
$150,000 ($75,000 if married filing
losses, and credits from all passive
any other trade or business in which
separately) and your modified adjusted
activities using the Instructions for Form
capital is not a material income-producing
gross income. When modified adjusted
8582 or Form 8582-CR (or Form 8810), to
factor.
gross income is $150,000 or more
see if your deductions, losses, and credits
7. Based on all the facts and
($75,000 or more if married filing
are limited under the passive activity
circumstances, you participated in the
separately), there is no special allowance.
rules.
activity on a regular, continuous, and
Modified adjusted gross income is your
substantial basis during the tax year.
adjusted gross income figured without
Special allowance for rental real estate
taking into account the following.
activities. If you actively participated in
•
Work counted toward material
Any passive activity loss.
a rental real estate activity, you may be
•
participation. Generally, any work that
Any rental real estate loss allowed
able to deduct up to $25,000 of the loss
you or your spouse do in connection with
under section 469(c)(7) to real estate
from the activity from nonpassive income.
an activity held through a partnership
professionals (as defined previously).
This “special allowance” is an exception
•
(where you own your partnership interest
Any overall loss from a publicly traded
to the general rule disallowing losses in
at the time the work is done) is counted
partnership.
excess of income from passive activities.
•
toward material participation. However,
Any taxable social security or
The special allowance is not available if
work in connection with the activity is not
equivalent railroad retirement benefits.
you were married, filed a separate return
•
counted toward material participation if
Any deductible contributions to an IRA
for the year, and did not live apart from
either of the following applies.
or certain other qualified retirement plans
your spouse at all times during the year.
1. The work is not the sort of work that
under section 219.
•
owners of the activity would usually do
Only individuals and qualifying estates
The domestic production activities
and one of the principal purposes of the
can actively participate in a rental real
deduction.
•
work that you or your spouse does is to
estate activity. Estates (other than
The student loan interest deduction.
-4-
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