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of holding real property placed in service

For a closely held C corporation

disabled farmers and to the surviving

before 1987 by the partnership. The activity

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

spouses of farmers. See the Instructions for

TIP

of holding mineral property doesn't qualify for

above conditions are treated as met

Form 8582 for details.

this exception. The partnership should

if more than 50% of the corporation's gross

Corporations should refer to the

identify on a statement attached to

receipts were from real property trades or

Instructions for Form 8810 for the material

Schedule K-1 any losses that are not subject

businesses in which the corporation

participation standards that apply to them.

to the at-risk limitations.

materially participated.

Individuals (other than limited

Generally, you are not at risk for amounts

For purposes of this rule, each interest in

partners). If you are an individual (either a

such as the following.

rental real estate is a separate activity,

general partner or a limited partner who

Nonrecourse loans used to finance the

unless you elect to treat all interests in rental

owned a general partnership interest at all

activity, to acquire property used in the

real estate as one activity. For details on

times during the tax year), you materially

activity, or to acquire your interest in the

making this election, see the Instructions for

participated in an activity only if one or more

activity, that are not secured by your own

Schedule E (Form 1040), Supplemental

of the following apply.

property (other than the property used in the

Income and Loss.

1. You participated in the activity for

activity). See the instructions for item K, later,

If you are married filing jointly, either you

more than 500 hours during the tax year.

for the exception for qualified nonrecourse

or your spouse must separately meet both

financing secured by real property.

2. Your participation in the activity for

(a) and (b) of the above conditions, without

Cash, property, or borrowed amounts

the tax year constituted substantially all the

taking into account services performed by

used in the activity (or contributed to the

participation in the activity of all individuals

the other spouse.

activity, or used to acquire your interest in

(including individuals who are not owners of

A real property trade or business is any

the activity) that are protected against loss

interests in the activity).

real property development, redevelopment,

by a guarantee, stop-loss agreement, or

3. You participated in the activity for

construction, reconstruction, acquisition,

other similar arrangement (excluding

more than 100 hours during the tax year, and

conversion, rental, operation, management,

casualty insurance and insurance against

your participation in the activity for the tax

leasing, or brokerage trade or business.

tort liability).

year wasn't less than the participation in the

Services you performed as an employee are

Amounts borrowed for use in the activity

activity of any other individual (including

not treated as performed in a real property

from a person who has an interest in the

individuals who were not owners of interests

trade or business unless you owned more

activity, other than as a creditor, or who is

in the activity) for the tax year.

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

related, under section 465(b)(3), to a person

4. The activity was a significant

capital or profits interest) in the employer.

(other than you) having such an interest.

participation activity for the tax year, and you

3. Working interests in oil or gas wells if

You should get a separate statement of

participated in all significant participation

you were a general partner.

income, expenses, and other items for each

activities (including activities outside the

4. The rental of a dwelling unit any

activity from the partnership.

partnership) during the year for more than

partner used for personal purposes during

500 hours. A significant participation activity

Passive Activity Limitations

the year for more than the greater of 14 days

is any trade or business activity in which you

or 10% of the number of days that the

Section 469 provides rules that limit the

participated for more than 100 hours during

residence was rented at fair rental value.

deduction of certain losses and credits.

the year and in which you didn't materially

These rules apply to partners who:

participate under any of the material

5. Activities of trading personal property

Are individuals, estates, trusts, closely

participation tests (other than this test).

for the account of owners of interests in the

held C corporations, or personal service

activities.

5. You materially participated in the

corporations; and

activity for any 5 tax years (whether or not

If you are an individual, an estate, or a

Have a passive activity loss or credit for

consecutive) during the 10 tax years that

trust, and you have a passive activity loss or

the tax year.

immediately precede the tax year.

credit, use Form 8582, Passive Activity Loss

Generally, passive activities include the

6. The activity was a personal service

Limitations, to figure your allowable passive

following.

activity and you materially participated in the

losses and Form 8582-CR, Passive Activity

activity for any 3 tax years (whether or not

1. Trade or business activities in which

Credit Limitations, to figure your allowable

consecutive) preceding the tax year. A

passive credits. For a corporation, use Form

you didn't materially participate.

personal service activity involves the

8810, Corporate Passive Activity Loss and

2. Activities that meet the definition of

performance of personal services in the

Credit Limitations. See the instructions for

rental activities under Temporary

fields of health, law, engineering,

these forms for details.

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

architecture, accounting, actuarial science,

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

performing arts, consulting, or any other

If the partnership had more than one

activity, it will attach a statement to your

trade or business in which capital isn't a

Passive activities do not include the

material income-producing factor.

following.

Schedule K-1 that identifies each activity

(trade or business activity, rental real estate

7. Based on all the facts and

1. Trade or business activities in which

activity, rental activity other than rental real

circumstances, you participated in the

you materially participated.

estate, and other activity) and specifies the

activity on a regular, continuous, and

2. Rental real estate activities in which

income (loss), deductions, and credits from

substantial basis during the tax year.

you materially participated if you were a real

each activity.

estate professional for the tax year. You

Limited partners. If you are a limited

Material participation. You must

were a real estate professional only if you

partner, you do not materially participate in

determine if you materially participated (a) in

met both of the following conditions.

an activity unless you meet one of the tests

each trade or business activity held through

in paragraph 1, 5, or 6 above.

a. More than half of the personal

the partnership, and (b) if you were a real

services you performed in trades or

estate professional (defined earlier), in each

Work counted toward material

businesses were performed in real property

rental real estate activity held through the

participation. Generally, any work that you

trades or businesses in which you materially

or your spouse does in connection with an

partnership. All determinations of material

participated.

participation are based on your participation

activity held through a partnership (where

b. You performed more than 750 hours

during the partnership's tax year.

you own your partnership interest at the time

of services in real property trades or

the work is done) is counted toward material

Material participation standards for

businesses in which you materially

participation. However, work in connection

partners who are individuals are listed below.

participated.

Special rules apply to certain retired or

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

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Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Deductions, Credits, Etc. (For Partner'S Use Only) - 2016 Page 3

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