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Department of the Treasury
Internal Revenue Service
2023

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

Section references are to the Internal corporation has a passive activity credit for Employee-owner. A person is
Revenue Code unless otherwise noted. the year if its credits from passive activities considered to be an employee-owner if the
(including prior year unallowed credits) person is an employee of the corporation
Future Developments exceed the sum of the tax attributable to on any day of the testing period, and owns
For the latest information about net passive income and the tax any outstanding stock of the corporation
developments related to Form 8810 and attributable to net active income. on any day of the testing period. Stock
its instructions, such as legislation ownership is determined under the
enacted after they were published, go to For more information, see Pub. 925, attribution rules of section 318, except that
IRS.gov/Form8810. Passive Activity and At-Risk Rules. “any” is substituted for “50 percent or more
in value” in section 318(a)(2)(C).
Definitions Closely held corporation. A corporation
General Instructions Except as otherwise indicated, the is a closely held corporation if at any time
following terms are defined below. during the last half of the tax year more
Purpose of Form than 50% in value of its outstanding stock
Personal service corporations and closely Personal service corporation. A
held corporations use Form 8810 to figure personal service corporation is a is directly or indirectly owned by or for not
the amount of any passive activity loss corporation whose principal activity for the more than five individuals, and the
(PAL) or credit for the current tax year and testing period (defined below) for the tax corporation is not a personal service
the amount of losses and credits from year is the performance of personal corporation.
passive activities allowed on the services. The services must be Certain organizations are treated as
corporation's tax return. Form 8810 is also substantially performed by individuals for this test (see section
used to make the election to increase the employee-owners. Employee-owners must 542(a)). For rules of determining stock
basis of credit property when the own more than 10% of the fair market ownership, see section 544 (as modified
corporation disposes of its interest in an value (FMV) of the corporation's by section 465(a)(3)).
activity for which it has an unused credit. outstanding stock on the last day of the
testing period. Other Passive Activity Terms
Generally, passive activities include Some additional terms are defined below.
trade or business activities in which the Testing period. Generally, the testing
corporation did not materially participate period for a tax year is the prior tax year. Net income. The excess of current year
for the tax year, and rental activities The testing period for a new corporation income over current year deductions from
regardless of its participation. starts with the first day of its first tax year the activity. This includes any current year
and ends on the earlier of: gains or losses from the disposition of
Note. Individuals subject to the passive • The last day of its first tax year, or assets or an interest in the activity.
activity rules use Form 8582, Passive • The last day of the calendar year in Net loss. The excess of current year
Activity Loss Limitations. which the first tax year began. deductions over current year income from
Principal activity. The principal the activity. This includes any current year
Who Must File activity of a corporation is considered to gains or losses from the disposition of
Personal service corporations and closely be the performance of personal services if, assets or an interest in the activity.
held corporations that have losses or during the testing period, the corporation's Overall gain. The excess of the net
credits (including prior year unallowed compensation costs for the performance income from the activity over the prior year
losses and credits) from passive activities of personal services are more than 50% of unallowed losses from the activity.
must file Form 8810. its total compensation costs.
Overall loss. The excess of the prior year
Passive activity loss (PAL). A personal Performance of personal services. unallowed losses from the activity over the
service corporation has a PAL for the year Personal services are those performed in net income from the activity or the prior
if the total losses (including prior year the health, law, engineering, architecture, year unallowed losses from the activity
unallowed losses) from its passive accounting, actuarial science, performing plus the net loss from the activity.
activities exceed the total income from its arts, or consulting field (as defined in
passive activities. A closely held Temporary Regulations section Prior year unallowed losses. The
corporation has a PAL for the year if the 1.448-1T(e)). The term “performance of deductions and losses from an activity that
total losses (including prior year unallowed personal services” includes any activity were disallowed under the PAL limitations
losses) from all its passive activities involving the performance of personal in a prior year and carried forward to the
exceed the sum of the total income from services in these areas. tax year under section 469(b). See
all its passive activities and its net active Regulations section 1.469-1(f)(4).
income. Substantial performance by
employee-owners. Personal services
Passive activity credit. A personal Coordination With Other
are substantially performed by
service corporation has a passive activity Limitations
employee-owners if, for the testing period,
credit for the year if its credits from passive Generally, items of deduction or loss from
more than 20% of the corporation's
activities (including prior year unallowed a passive activity are subject to other
compensation costs for the performance
credits) exceed the tax attributable to net limitations before they are subject to the
of personal services are for services
passive income. A closely held PAL limitations. Once a deduction or loss
performed by employee-owners.

Aug 8, 2023 Cat. No. 10357E

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becomes allowable under these other See Regulations section 1.469-9(g) for lease, a service contract, or some other
limitations, the corporation must determine details on how to make or revoke this arrangement.
whether the deduction or loss is limited election. For information on making a late
under the PAL rules. Examples of other election, see Rev. Proc. 2011-34, 2011-24 Exceptions
limitations include the following. I.R.B. 875, available at IRS.gov/irb/ An activity is not a rental activity if any of
• Basis. 2011-24_IRB. the following apply.
• Section 163(j) interest deduction A real property trade or business is any 1. The average period of customer
limitations. real property development, use (see below) of the rental property is:
• At-risk limitations. See Form 6198, redevelopment, construction, a. 7 days or less, or
At-Risk Limitations, for details on the reconstruction, acquisition, conversion,
b. 30 days or less and significant
at-risk rules. rental, operation, management, leasing, or
personal services (see below) were
In addition, certain allowances under brokerage trade or business.
provided in making the rental property
the PAL rules may be limited under other available for customer use.
rules. These include the following. Note. If an activity qualifies for the
• Capital losses allowable under the PAL exception described above in 2023, but Figure the average period of customer
rules may be limited under the capital loss has a prior year unallowed PAL, the prior use for a class of property by dividing the
limitations of section 1211(a). year unallowed loss is treated as a loss total number of days in all rental periods
• Percentage depletion deductions from a former passive activity. See Former by the number of rentals during the tax
allowable under the PAL rules may be Passive Activities, later. year. If the activity involves renting more
limited under section 613A(d). 3. A working interest in an oil or gas than one class of property, multiply the
well held directly or through an entity that average period of customer use of each
Special Rules for does not limit the corporation's liability class by the ratio of the gross rental
(such as a general partner's interest in a income from that class to the activity's
Consolidated Group partnership). In this case, it does not total gross rental income. The activity's
The passive activity loss and passive matter whether the corporation materially average period of customer use equals the
activity credit of an affiliated group of participated in the activity for the tax year. sum of these class-by-class average
corporations filing a consolidated return periods weighted by gross income. See
for the tax year (a consolidated group) are If, however, the corporation's liability
determined by taking into account the was limited for part of the year (for Regulations section 1.469-1(e)(3)(iii) for
following items of each member of the example, the corporation converted its more details.
group. general partnership interest to a limited Significant personal services include
• Passive activity gross income and partnership interest during the year), some only services performed by individuals. To
deductions. of the corporation's income and losses determine if personal services are
• Gain or loss on dispositions. from the working interest may be treated significant, all the relevant facts and
• Net active income (for a consolidated as passive activity gross income and circumstances are taken into
group treated as a closely held passive activity deductions. See consideration, including the frequency of
corporation). Temporary Regulations section the services, the type and amount of labor
• Credits from passive activities. 1.469-1T(e)(4) for more details. required to perform the services, and the
4. An activity of trading personal value of the services relative to the amount
Activities That Are Not property for the account of owners of charged for the use of the property.
interests in the activity. For purposes of Significant personal services do not
Passive Activities this rule, personal property means include:
The following are not classified as passive property that is actively traded, such as a. Services needed to permit the
activities. Generally, income, losses, and stocks, bonds, and other securities. See lawful use of the property;
credits from these activities are not Temporary Regulations section b. Services to repair or improve
entered on Form 8810. However, losses 1.469-1T(e)(6) for more details. property that would extend its useful life for
and credits from these activities may be a period substantially longer than the
subject to limitations other than the Rental Activities average rental period; and
passive activity loss and credit rules. A rental activity is a passive activity even if c. Services that are similar to those
1. Trade or business activities in the corporation materially participated in commonly provided with long-term rentals
which the corporation materially the activity unless it meets the of real estate, such as cleaning and
participated for the tax year. requirements described in item 2 under maintenance of common areas, routine
2. Any rental real estate activity in Activities That Are Not Passive Activities repairs, trash collection, elevator service,
which the corporation materially above. In addition, if the corporation meets and security at entrances or perimeters.
participated if the corporation was a any of the five exceptions listed below, the 2. Extraordinary personal services
closely held corporation that derived more rental of the property is not treated as a were provided in making the rental
than 50% of its gross receipts from real rental activity. See Reporting Income, property available for customer use.
property trades or businesses in which it Deductions, Losses, and Credits From
materially participated. For these Rental Activities, later, if the corporation Extraordinary personal services are
purposes, gross receipts do not include meets any of the exceptions. services provided in making rental
property available for customer use only if
portfolio income, as defined later under An activity is a rental activity if tangible they are performed by individuals and the
Passive Activity Income. property (real or personal) is used by customers' use of the property is
For purposes of this rule, each interest customers or held for use by customers incidental to their receipt of the services.
in rental real estate is a separate activity, and the gross income (or expected gross 3. Rental of the property is incidental
unless the corporation elects to treat all income) from the activity represents to a nonrental activity.
interests in rental real estate as one amounts paid (or to be paid) mainly for the
activity. The corporation makes the use of the property. It does not matter The rental of property is incidental to an
election by attaching a statement to its whether the use of the property is under a activity of holding property for investment if
original income tax return for the tax year. the main purpose for holding the property

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during the tax year is to realize a gain from To report income, deductions, losses, each trade or business activity in which
its appreciation and the gross rental or credits from a trade or business activity the corporation did not materially
income is less than 2% of the smaller of in which the corporation did not materially participate. If, however, the corporation
the unadjusted basis or the FMV of the participate, see Trade or business held the activity through a PTP or the
property. activities without material participation activity is a significant participation activity,
Unadjusted basis is the cost of the under Reporting Income, Deductions, special rules apply. See Publicly Traded
property without regard to depreciation Losses, and Credits From Trade or Partnerships (PTPs), later. See Significant
deductions or any other basis adjustment Business Activities, later. Participation Passive Activities under
Recharacterization of Passive Income in
described in section 1016. If the corporation meets any of the five Pub. 925 for details about how to report
The rental of property is incidental to a exceptions and the activity is a trade or income or losses from significant
trade or business activity if: business activity in which the corporation participation passive activities.
a. The corporation owned an interest materially participated, report any income,
in the trade or business activity during the deduction, loss, or credit from the activity In general, if the corporation has credits
tax year, on the forms or schedules normally used. from passive activities, use Worksheet 5 to
figure the amount to enter in Part II of Form
b. The rental property was mainly If the rental activity did not meet any of 8810. However, if the corporation held the
used in the trade or business activity the five exceptions, it is generally a activity through a PTP, special rules apply.
during the tax year or during at least 2 of passive activity. Special rules apply if the See Credits From PTPs, later, for details
the 5 preceding tax years, and corporation conducted the rental activity about how to report credits from these
c. The gross rental income from the through a publicly traded partnership activities.
property is less than 2% of the smaller of (PTP) or if any of the rules described
the unadjusted basis or the FMV of the under Recharacterization of Passive Material Participation
property. Income, later, apply. See PAL rules for Personal service corporations and closely
Lodging provided for the employer's partners in PTPs under Special held corporations materially or significantly
convenience to an employee or the Instructions for PTPs, later. participate in an activity if one or more
employee's spouse or dependents is If none of the special rules apply, use individuals, each of whom would materially
incidental to the activity or activities in Worksheets 1 and 2 to determine the or significantly participate in the activity if
which the employee performs services. amount to enter in Part I of Form 8810 for the corporation's activity were the
4. The corporation customarily makes each passive rental activity. If the individual's activity, directly or indirectly
the rental property available during corporation has credits from passive rental own more than 50% (by value) of the
defined business hours for nonexclusive activities, use Worksheet 5 to figure the corporation's outstanding stock. For this
use by various customers. amount to enter in Part II of Form 8810. purpose, an individual's participation in all
5. The corporation provides property The worksheets are located later in the activities other than activities of the
for use in a nonrental activity of a instructions. corporation is disregarded.
partnership or joint venture in its capacity A closely held corporation also
as an owner of an interest in the Trade or Business materially participates in an activity if the
partnership or joint venture. Activities corporation satisfies the qualifying
Example. If a partner contributes the A trade or business activity is an activity business requirements of section 465(c)
use of property to a partnership, none of (other than a rental activity or an activity (7)(C) (without regard to section 465(c)(7)
the partner's distributive share of treated as incidental to an activity of (C)(iv) for the excluded business
partnership income is income from a rental holding property for investment) that: exception from the at-risk limitations).
activity unless the partnership is engaged 1. Involves the conduct of a trade or These requirements are met if:
in a rental activity. business (within the meaning of section 1. During the entire 12-month period
Also, a partner's gross income 162), ending on the last day of the tax year,
attributable to a guaranteed payment 2. Is conducted in anticipation of substantially all the services of at least
under section 707(c) is not income from a starting a trade or business, or one full-time employee of the corporation
rental activity. The determination of were in the active management of the
whether the property used in the activity is 3. Involves research or experimental
provided in the partner's capacity as an expenditures deductible under section 174 activity;
owner of an interest in the partnership is (or that would be if the corporation chose 2. During the same period,
made on the basis of all the facts and to deduct rather than capitalize them). substantially all the services of at least
circumstances. three full-time nonowner employees were
Reporting Income, Deductions, directly related to the activity; and
Reporting Income, Deductions, Losses, and Credits From Trade 3. The deductions attributable to the
Losses, and Credits From or Business Activities activity and allowed solely under sections
162 and 404 exceed 15% of the gross
Rental Activities Trade or business activities with mate- income from the activity for the tax year.
If the corporation meets any of the five rial participation. If the corporation
exceptions listed above, the corporation's materially participated in a trade or Participation. For purposes of the
rental of the property is not a rental activity. business activity, that activity is not a material participation tests listed below,
The corporation then must determine: passive activity. Report the income, participation generally includes any work
1. Whether the rental of the property deductions, losses, and credits from the the individual did (without regard to the
is a trade or business activity (see Trade or activity on the form or schedule normally capacity in which the individual did it) in
Business Activities, later) and, if so, used. connection with an activity in which the
2. Whether the corporation materially Trade or business activities without corporation owned an interest at the time
participated in the activity for the tax year. material participation. In general, use the individual did the work.
Worksheets 1 and 2 to determine the Work is not treated as participation,
amount to enter in Part I of Form 8810 for however, if the work is not work that an

Instructions for Form 8810 (2023) -3-

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owner of that type of activity would participated in all significant participation The corporation is not treated as a
customarily do, and if one of the activities during the year for more than 500 limited partner, however, if the corporation
individual's main reasons for doing the hours. For this purpose, an individual's was also a general partner in the
work is to avoid the disallowance of losses participation in all activities other than partnership at all times during the
or credits from the activity under the activities of the corporation is disregarded. partnership's tax year ending with or within
passive activity loss and credit rules. A significant participation activity is any the corporation's tax year (or, if shorter,
Proof of participation. Participation trade or business activity in which the during the portion of the partnership's tax
in an activity can be proved by any individual participated for more than 100 year in which the corporation directly or
reasonable means. Contemporaneous hours during the year and in which the indirectly owned a limited partnership
daily time reports, logs, or similar individual did not materially participate interest).
documents are not required if participation under any of the material participation
Consolidated groups. See Regulations
can be established by other reasonable tests (other than this fourth test). For more
section 1.469-1(h)(4) for rules for
means. Reasonable means for this information regarding significant
determining whether a consolidated group
purpose may include, but are not limited participation, see Pub. 925.
materially or significantly participates.
to, the identification of services performed 5. The individual materially
over a period of time and the approximate participated in the activity (other than by Grouping of Activities
number of hours spent performing the meeting this fifth test) for any 5 (whether or
services during that period, based on not consecutive) of the 10 immediately Generally, one or more trade or business
appointment books, calendars, or preceding tax years. activities or rental activities may be treated
as a single activity if the activities make up
narrative summaries. 6. The activity is a personal service an appropriate economic unit for the
activity in which the individual materially
Tests for investors. Work done as an measurement of gain or loss under the
participated for any 3 (whether or not
investor in an activity is not treated as passive activity rules. Whether activities
consecutive) preceding tax years.
participation unless the individual was make up an appropriate economic unit
directly involved in the day-to-day An activity is a personal service activity depends on all the relevant facts and
management or operations of the activity. if it involves the performance of personal circumstances. The factors given the
For purposes of this test, work done as an services in the field of health, law, greatest weight in determining whether
investor includes the following activities. engineering, architecture, accounting, activities make up an appropriate
• Studying and reviewing financial actuarial science, performing arts, or economic unit are:
statements or reports on operations of the consulting, or in any other trade or 1. Similarities and differences in types
activity. business in which capital is not a material of trades or businesses,
• Preparing or compiling summaries or income-producing factor.
2. The extent of common control,
analyses of the finances or operations of 7. Based on all the facts and
the activity for the individual's own use. circumstances, the individual participated 3. The extent of common ownership,
• Monitoring the finances or operations of in the activity on a regular, continuous, and 4. Geographical location, and
the activity in a nonmanagerial capacity. substantial basis during the tax year. 5. Interdependencies between or
If the individual is married for the tax The individual does not materially among the activities. This includes the
year, the individual's participation in an participate in the activity under this extent to which the activities purchase or
activity includes any participation in the seventh test, however, if the individual sell goods between or among themselves,
activity during the tax year by that participated in the activity for 100 hours or involve products or services that are
individual's spouse, whether or not the less during the tax year. Participation in normally provided together, have the same
spouse owned any interest in the activity managing the activity does not count in customers, have the same employees, or
and whether or not the individual and determining whether the individual are accounted for with a single set of
spouse file a joint return for the tax year. materially participated under the test if: books and records.
Tests for individuals. An individual a. Any person (except that individual) Example. A corporation has a
materially participates in an activity of the received compensation for performing significant ownership interest in a bakery
corporation if one or more of the following services in the management of the activity, and a movie theater in Baltimore and in a
tests are satisfied. or bakery and a movie theater in
1. The individual participated in the b. Any person in the activity spent Philadelphia. Depending on all the
activity for more than 500 hours during the more hours during the tax year than that relevant facts and circumstances, there
tax year. individual spent performing services in the may be more than one reasonable method
2. The individual's participation in the management of the activity (regardless of for grouping the activities. For instance,
activity for the tax year was substantially whether the individual was compensated the following groupings may or may not be
all of the participation in the activity of all for the management services). permissible.
individuals (including individuals who did • A single activity.
Special rules for limited partners. • A movie theater activity and a bakery
not own any interest in the corporation or Generally, a limited partner cannot activity.
the activity) for the year. A Baltimore activity and a Philadelphia
materially participate in an activity. •
3. The individual participated in the However, the corporation is considered to activity.
activity for more than 100 hours during the materially participate in an activity in which • Four separate activities.
tax year, and that individual participated at it holds a limited partnership interest if one Once the corporation chooses a
least as much as any other individual or more individuals (each of whom would grouping under these rules, it must
(including individuals who did not own any materially participate in the activity under continue using that grouping in later tax
interest in the corporation or the activity) test 1, 5, or 6, discussed above, for the tax years unless either:
for the year. year if the corporation's activity were the • The corporation determines that the
4. The activity is a significant individual's activity) directly or indirectly original grouping was clearly
participation activity for the individual for own more than 50% (by value) of the inappropriate, or
the tax year, and the individual corporation's outstanding stock.

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• A material change in the facts and grouped together by the partnership or was clearly inappropriate or the nature of
circumstances makes that grouping corporation. the material change in the facts and
clearly inappropriate. circumstances that made the original
Partial disposition of an activity. grouping clearly inappropriate.
The IRS may regroup the corporation's The corporation can, for the tax year in
activities if any of the activities resulting which there is a disposition of substantially Reporting of pre-existing groupings re-
from the corporation's groupings are not all of an activity, treat the part disposed of quired only upon change. The
an appropriate economic unit and one of as a separate activity if it can prove with corporation is not required to file a written
the primary purposes of the grouping (or reasonable certainty: statement reporting the grouping of the
failure to regroup as required under trade or business activities and rental
Regulations section 1.469-4(e)) is to avoid 1. The prior year unallowed losses
the underlying purposes of the passive and credits, if any, allocable to the part of activities that have been made for tax
activity rules. the activity disposed of; and years beginning before January 25, 2010
(pre-existing groupings), until the
The corporation must comply with 2. The net income or loss and any corporation makes a change to the
disclosure requirements for certain credits for the year of disposition allocable grouping.
changes to the corporation's groupings as to the disposed part of the activity.
Effect of failure to report. If the
described in Disclosure Requirement, Disclosure Requirement corporation fails to report these changes,
later. each trade or business activity or rental
A corporation is required to report to the
Limitation on grouping certain activi- IRS certain changes to the corporation’s activity will be treated as a separate
ties. The following activities cannot be groupings that occur during the tax year. activity. The corporation will be considered
grouped together. For more information on these disclosure to have made a timely disclosure if it has
1. A rental activity with a trade or requirements, see Rev. Proc. 2010-13, filed all affected income tax returns
business activity unless the activities 2010-4 I.R.B. 329, available at IRS.gov/irb/ consistent with the claimed grouping and
being grouped together make up an 2010-04_IRB. makes the required disclosure on the
income tax return for the year in which the
appropriate economic unit and: New grouping. The corporation must file corporation first discovered the failure to
a. The rental activity is insubstantial a written statement with its original income disclose. If the IRS first discovers the
relative to the trade or business activity or tax return for the first tax year in which two failure to disclose, however, the
vice versa, or or more activities are originally grouped as corporation must also have reasonable
b. Each owner of the trade or a single activity. The statement must cause for not making the required
business activity has the same provide the names, addresses, and disclosure.
proportionate ownership interest in the employer identification numbers (EINs), if
rental activity. If so, the rental activity applicable, for the activities being grouped
portion involving the rental of property as a single activity. In addition, the Passive Activity Income
used in the trade or business activity can statement must contain a declaration that and Deductions
be grouped with the trade or business the grouped activities make up an Take into account only passive activity
activity. See Rental activities under appropriate economic unit for the income and passive activity deductions to
Grouping Your Activities in Pub. 925 for an measurement of gain or loss under the figure the corporation's overall gain or
example. passive activity rules. overall loss from all passive activities or
any passive activity. In figuring the PAL, a
2. An activity involving the rental of Addition to an existing grouping. The closely held corporation subtracts both
real property with an activity involving the corporation must file a written statement
passive activity income and net active
rental of personal property (except with its original income tax return for the
income from its passive activity
personal property provided in connection tax year in which the corporation adds a
deductions. See the instructions for line 2,
with the real property or vice versa). new activity to an existing grouping. The
later, for the definition of net active
3. Any activity with another activity in statement must provide the name,
income.
a different type of business and in which address, and EIN, if applicable, for the
the corporation holds an interest as a activity that is being added and for the Self-Charged Interest
limited partner or as a limited entrepreneur activities in the existing grouping. In Certain “self-charged” interest income or
if that other activity is holding, producing, addition, the statement must contain a expense can be treated as passive activity
or distributing motion picture films or declaration that the activities make up an gross income or passive activity
videotapes; farming; leasing section 1245 appropriate economic unit for the deductions if the loan proceeds are used
property; or exploring for or exploiting oil measurement of gain or loss under the in a passive activity. Generally,
and gas resources or geothermal passive activity rules. self-charged interest income and expense
deposits. Regrouping. The corporation must file a result from loans between the corporation
written statement with its original income and a partnership in which the corporation
Activities conducted through partner- tax return for the tax year in which the had a direct or indirect ownership interest.
ships and other C corporations sub- corporation regroups activities under It may also result from loans between one
ject to section 469. Once a partnership Regulations section 1.469-4(e)(2). The partnership and another if each owner in
or corporation determines its activities statement must provide the names, the borrowing entity has the same
under these rules, a partner or addresses, and EINs, if applicable, for the proportional ownership interest in the
shareholder can use these rules to group activities that are being regrouped. If the lending entity. The self-charged interest
those activities with: corporation regroups two or more activities rules do not apply to the corporation's
• Each other, into a single activity, the statement must partnership interest if the partnership
• Activities conducted directly by the contain a declaration that the regrouped made an election under Regulations
partner or shareholder, or activities make up an appropriate section 1.469-7(g) to avoid the application
• Activities conducted through other economic unit for the measurement of gain of these rules. See Regulations section
partnerships and corporations. or loss under the passive activity rules. In 1.469-7 for details.
A partner or shareholder cannot treat addition, the statement must contain an
as separate activities those activities explanation of why the original grouping

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Passive Activity Income Recharacterization of Passive interest treated as a passive activity
Passive activity income includes all Income deduction (see Self-Charged Interest,
income from passive activities, including earlier). For example, capitalized interest
(with certain exceptions described in Certain income from passive activities can expense is not a passive activity
Temporary Regulations section be recharacterized and excluded from deduction.
1.469-2T(c)(2) and Regulations section passive activity income. The amount of • Losses from dispositions of property
1.469-2(c)(2)) gain from the disposition of income recharacterized equals the net that produce portfolio income or property
an interest in a passive activity or property income from the sources described below. held for investment.
used in a passive activity at the time of the If during the tax year the corporation • State, local, and foreign income taxes.
disposition. received net income from any of these • Charitable contribution deductions.
sources (either directly or through a • Net operating loss deductions,
Passive activity income does not partnership), see Recharacterization of percentage depletion carryovers under
include the following. Passive Income in Pub. 925 for details on section 613A(d), and capital loss
• Income from activities that are not reporting net income or loss from these carrybacks and carryovers.
passive activities, discussed earlier. sources. • Deductions and losses that would have
• Portfolio income, including interest, been allowed for tax years beginning
dividends, annuities, and royalties not Income from the following sources may before 1987 but for basis or at-risk
derived in the ordinary course of a trade or be subject to the net income limitations.
business, and gain or loss from the recharacterization rules. • Net negative section 481 adjustments
disposition of property that produces • Significant participation passive allocated to activities other than passive
portfolio income or is held for investment activities. A significant participation activities. See Temporary Regulations
(see section 163(d)(5)). See Temporary passive activity is any trade or business section 1.469-2T(d)(7).
Regulations section 1.469-2T(c)(3). See activity (see Trade or Business Activities, • Deductions for losses from fire, storm,
Self-Charged Interest, earlier, for an earlier) in which the corporation is treated shipwreck, or other casualty, or from theft,
exception. as having participated for more than 100 if losses similar in cause and severity do
• Personal service income, including hours during the tax year but did not not regularly recur in the activity.
commissions and income from trade or materially participate.
business activities in which the • Rental of property when less than 30% Former Passive Activities
corporation materially participated for the of the unadjusted basis of the property is A former passive activity is any activity that
tax year. See Temporary Regulations subject to depreciation. was a passive activity in a prior tax year
section 1.469-2T(c)(4). • Passive equity-financed lending but is not a passive activity in the current
• Income from positive section 481 activities. tax year. A prior year unallowed loss from
adjustments allocated to activities other • Rental of property incidental to a a former passive activity is allowed to the
than passive activities. See Temporary development activity. extent of current year income from the
Regulations section 1.469-2T(c)(5). • Rental of property to a nonpassive activity. The following apply.
• Income or gain from investments of activity. • If the current year net income from the
working capital. • Acquisition of an interest in a activity is less than the prior year
• Income from an oil or gas property if the pass-through entity that licenses unallowed loss, enter the prior year
corporation treated any loss from a intangible property. unallowed loss and any current year net
working interest in the property for any tax income from the activity on Form 8810 and
year beginning after 1986 as a nonpassive Passive Activity Deductions the applicable worksheets.
loss under the rule excluding working Passive activity deductions include all • If the current year net income from the
interests in oil and gas wells from passive deductions from activities that are passive activity is more than or equal to the prior
activities, as discussed in item 3 under activities for the current tax year and all year unallowed loss from the activity,
Activities That Are Not Passive Activities, deductions from passive activities that report the income and loss on the forms
earlier. See Regulations section were disallowed under the PAL rules in and schedules normally used; do not enter
1.469-2(c)(6). prior tax years and carried forward to the the amounts on Form 8810.
• Any income treated as income not from current tax year under section 469(b). • If the activity has a net loss for the
a passive activity under Temporary current year, enter the prior year
Regulations section 1.469-2T(f) and Passive activity deductions include
Regulations section 1.469-2(f). See losses from dispositions of property used unallowed loss (but not the current year
Recharacterization of Passive Income, in a passive activity at the time of the loss) on Form 8810 and the applicable
later. disposition and losses from a disposition worksheets.
• Overall gain from any interest in a PTP. of less than an entire interest in a passive For rules about prior year unallowed
See Publicly Traded Partnerships (PTPs), activity. See Dispositions, later, for the credits from former passive activities, see
later. treatment of losses upon certain section 469(f). To report a disposition of a
• State, local, and foreign income tax dispositions of an entire interest in an former passive activity, follow the rules
refunds. activity. under Dispositions next.
• Any reimbursement of a casualty or Passive activity deductions do not
theft loss included in income as recovery include the following. Dispositions
of all or part of a prior year loss deduction, • Deductions for expenses (other than
if the deduction for the loss was not interest expense) that are clearly and Disposition of Less Than an
treated as a passive activity deduction. directly allocable to portfolio income. Entire Interest
• Cancellation of debt income to the • Dividends-received deductions for Gains and losses from the disposition of
extent that at the time the debt was dividends not included in passive activity less than an entire interest in an activity
discharged it was not properly allocable gross income. are treated as part of the net income or net
under Temporary Regulations section • Interest expense, other than interest loss from the activity for the current year.
1.163-8T to passive activities. expense properly allocable under
Temporary Regulations section 1.163-8T Note. A disposition of less than
to passive activities or self-charged substantially all of an entire interest does

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not trigger the allowance of prior year 
unallowed losses.                               Worksheet 1—Computation of Income, 
                                                 Gains, Deductions, and Losses for 
Disposition of an Entire Interest
                                                                    Worksheet 2                                   Keep for Your Records
If the corporation disposed of its entire 
interest in a passive activity or a former                                                                         
passive activity to an unrelated party in a 
fully taxable transaction during the tax                                                        Name of Activity:  Name of Activity:
year, the losses allocable to the activity for 
the year are not limited by the PAL rules. A    1.   Gross receipts . . . . . . . . . . . .
fully taxable transaction is a transaction in   2.   Schedule D and Form 8949 gains 
which all the realized gain or loss is               (see instructions) . . . . . . . . . .
recognized.                                     3.   Form 4797 gains    . . . . . . . . . .
If the corporation is using the                 4.   Other passive income     . . . . . . .
installment method to report this kind of       5.   Total income. Add lines 1 through 
disposition, figure the loss for the current         4. Enter the result here and in 
year that is not limited by the PAL rules by         Worksheet 2, column (a)      . . . . .  ▶
multiplying the corporation's overall loss      6.   Deductions:    . . . . . . . . . . . .
(which does not include losses allowed in 
prior years) by the following fraction.          a.  Cost of goods sold .   . . . . . . . .
                                                 b.  Compensation of officers     . . . . .
     Gain recognized in the current year         c.  Salaries and wages     . . . . . . . .
Unrecognized gain as of the beginning            d.  Repairs and 
            of the current year                      maintenance .  . . . . . . . . . . . .
                                                 e.  Bad debts   . . . . . . . . . . . . . .
                                                 f.  Rents . . . . . . . . . . . . . . . . .
Unallowed passive activity credits, 
unlike unallowed PALs, are not allowable         g.  Taxes and licenses .   . . . . . . . .
when the corporation disposes of its             h.  Interest . . . . . . . . . . . . . . . .
interest in an activity. However, the            i.  Depreciation . . . . . . . . . . . . .
corporation can elect to increase the basis 
of the credit property by the amount of the      j.  Depletion . . . . . . . . . . . . . . .
original basis reduction of the property to      k.  Advertising . . . . . . . . . . . . . .
the extent that the credit has not been          l.  Other deductions .   . . . . . . . . .
allowed under the passive activity rules. 
Unallowed passive activity credits that are     7.   Total deductions. Add lines 6a 
                                                     through 6l  . . . . . . . . . . . . . .
not used to increase the basis of the credit 
property are carried forward until they are     8.   Schedule D and Form 8949 losses 
allowed. To make the election, complete              (see instructions) . . . . . . . . . .
Part III of Form 8810. No basis adjustment      9.   Form 4797 losses .   . . . . . . . . .
can be elected on a partial disposition of      10. Total deductions and losses. 
the corporation's interest in a passive              Add lines 7 through 9. Enter the 
activity.                                            result here and in Worksheet 2, 
                                                     column (b) .  . . . . . . . . . . . . . ▶
A partner in a PTP is not treated as 
having disposed of an entire interest in an 
activity of a PTP until there is an entire 
disposition of the partner's interest in the   include the income, gains, deductions,           Temporary Regulations sections 
PTP.                                           and losses (including prior year unallowed       1.469-1T(h)(7) and (8) for rules on 
See Dispositions in Pub. 925 for               losses) on Worksheet 1. If this is the           applying the PAL rules to dispositions of 
additional information about dispositions,     corporation's only passive activity or a         property and other intercompany 
including rules for dispositions by gift or    former passive activity, report the income,      transactions.
death.                                         gains, deductions, and losses (including 
                                               prior year unallowed losses) on the forms 
Reporting an Entire Disposition                and schedules normally used, but do not          Specific Instructions
When the corporation completely                enter them on the worksheets or on Form          Note. Complete Worksheets 1 and 2 
disposes of an entire interest in a passive    8810.                                            before completing Form 8810, Part I.
activity or a former passive activity, there                                                    Worksheet 1
may be net income or loss and prior year        If the corporation has an overall loss 
unallowed losses from the activity.            when combining all income, gains,                Use Worksheet 1 to figure the total current 
Combine all income, gains, deductions,         deductions, and losses (including any            year income, gains, deductions, and 
and losses (including any prior year           prior year unallowed losses) from the            losses for each passive activity.
unallowed losses) from the activity for the    activity, report all the income, gains,          Lines 1 through 4. Enter on these lines 
tax year to see if the corporation has an      deductions, and losses on the forms and          the gross receipts and other income from 
overall gain or loss.                          schedules normally used, but do not enter        passive activities and passive activity 
                                               them on the worksheets or on Form 8810.          gains reported on Schedule D (Form 
If the corporation has an overall gain                                                          1120) and Form 8949, as applicable, and 
from a passive activity and also has other     Note. Members of a consolidated group, 
passive activities to report on Form 8810,     see Regulations section 1.469-1(h)(6) and        Form 4797, Sales of Business Property.

Instructions for Form 8810 (2023)                                     -7-

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Line 5. Enter total income on this line and including any prior year unallowed losses • Gross income and deductions from any
in Worksheet 2, column (a). entered on line 1c. Enter the deductions trade or business activity of trading certain
on the appropriate lines of Form 1120, personal property described in Temporary
Lines 6a through 6l. Enter passive U.S. Corporation Income Tax Return. Also Regulations section 1.469-1T(e)(6), but
activity deductions. enter any losses from Form 4797 or Form only if the corporation did not materially
Lines 8 and 9. Enter on line 8 losses 8949 (and Schedule D (Form 1120)) on participate in the activity for the tax year.
from passive activities reported on Form 1120, if applicable, including any
Schedule D (Form 1120) and Form 8949, prior year unallowed losses that are If the corporation disposed of its entire
as applicable. Enter on line 9 losses from properly entered on those forms. interest in a passive activity to an
unrelated party in a fully taxable
passive activities reported on Form 4797. If the prior year unallowed losses transaction, figure net active income by
Line 10. Enter total deductions and include deductions that would have been taking into account an overall loss from
losses on this line and in Worksheet 2, reported on Form 1120, page 1, instead of that activity only to the extent it exceeds
column (b). on Form 4797 or Form 8949 (and overall gain from all other passive activities
Schedule D (Form 1120), as applicable), (the gain, if any, shown on Form 8810,
Gross receipts, gains from the sale of include the prior year unallowed losses on line 1d).
business assets, capital gains, and other the appropriate line along with any current
passive income should also be entered on year deduction or loss from that line. If there is an overall loss from all other
the forms and schedules normally used. passive activities (Form 8810, line 1d, is a
Allowable passive activity deductions and Example. The corporation had $1,000 loss), figure net active income by taking
losses are entered on the forms and of deductions for current year repairs and into account all of the overall loss from that
schedules after Form 8810 is completed maintenance and $500 of deductions for activity.
and the deductions and losses are prior year unallowed repairs and
allocated to the activities. maintenance. Enter $1,500 as the Line 4. Total Deductions and
deduction for repairs and maintenance Losses Allowed
Worksheet 2 allowed from passive activities on the Worksheet 2, columns (d) and (e), show
Columns (a) and (b). Enter in column proper line. whether an activity had an overall gain or
(a) the total income for the current year loss.
Line 2. Closely Held
shown on Worksheet 1, line 5. Enter in
column (b) the total deductions and losses Corporations Overall gain. A corporation with an
shown on Worksheet 1, line 10. Closely held corporations can offset the overall gain for any of the activities in
Column (c). Enter the prior year loss, if any, on line 1d with net active Worksheet 2, column (d), will report all of
unallowed losses from Worksheet 4, income. Net active income is the the deductions and losses listed in
column (c), located in the 2022 corporation's taxable income for the tax Worksheet 1 and any prior year unallowed
Instructions for Form 8810. year, determined without regard to the losses in Worksheet 2 for that activity on
following items. the appropriate lines of Form 1120 and on
Totals. Enter the totals from Worksheet 2, • Net passive income or loss. Form 8949 and Schedule D (Form 1120),
columns (a), (b), and (c), on Form 8810, • Portfolio income. See Passive Activity or Form 4797, as applicable.
lines 1a, 1b, and 1c, respectively. Income, earlier. Overall loss. A corporation uses
Columns (d) and (e). Combine income, • Deductions attributable to portfolio Worksheets 3 and 4 for any of the
deductions, and losses in columns (a) income described in Temporary activities that show an overall loss in
through (c) for each activity. Enter any Regulations sections 1.469-2T(d)(2)(i), (ii), column (e). Use Worksheet 3 to figure the
overall gain in column (d) or any overall and (iv). unallowed deductions and losses to be
loss in column (e). Do not enter the • Interest expense allocated under carried forward to Worksheet 4. Use
amounts from columns (d) and (e) on Temporary Regulations section 1.163-8T Worksheet 4 to figure the allowed
Form 8810. These amounts will be used to a portfolio expenditure (within the deductions and losses to report on the
when Form 8810 is completed to figure the meaning of Temporary Regulations forms and schedules for 2023.
loss allowed for the current year. section 1.163-8T(b)(6)).
• Gain on the disposition of substantially
appreciated property formerly held for
Part I. 2023 Passive investment. See Regulations section
Activity Loss 1.469-2(c)(2)(iii)(F).
• Gross income from certain oil or gas
Lines 1d and 3 properties treated under Regulations
If line 1d or 3 shows net income or zero, all section 1.469-2(c)(6) as not from a
the deductions and losses are allowed passive activity.

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Worksheet 2 for Form 8810, Lines 1a, 1b, and 1c Keep for Your Records
Current Year Prior Year Overall Gain or Loss
Name of Activity (a) Income (b) Deductions and (c) Unallowed
(d) Gain (e) Loss
(Line 1a) Losses (Line 1b) Losses (Line 1c)

Totals. Enter on Form 8810, lines
1a, 1b, and 1c . . . . . . . . . . . . . . ▶

Worksheet 3—Allocation of Unallowed Deductions and Losses Keep for Your Records
If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to figure the unallowed deductions and losses for
each activity.
If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses (including prior year unallowed losses) for
that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120 and enter any losses on Form 4797, Form 8949, and
Schedule D (Form 1120), as applicable.
Prior year unallowed losses from 2022. If there were prior year unallowed losses from 2022, include the prior year unallowed losses on the
appropriate line along with any current year deduction or loss for that line. See the example in the instructions for lines 1d and 3, earlier. Prior year
unallowed losses from Form 4797 and Form 8949 should have been kept separate in 2022, and should be identified as “prior year unallowed losses”
on Form 4797 and Form 8949.
Column (a). Enter the loss from Worksheet 2, column (e).
Column (b). Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for each of the activities
in column (b). The total of all the ratios should equal 1.00.
Column (c). Multiply the unallowed loss from Form 8810, line 3, by each of the ratios in column (b) and enter the results in column (c).

(a) Loss From (c) Unallowed Deductions
Name of Activity (b) Ratio
Worksheet 2, Column (e) and Losses

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ 1.00

Worksheet 4 Form 8949 and Schedule D (Form 1120), If the unallowed loss is from losses
Use Worksheet 4 to allocate the unallowed as applicable. reported on more than one form or
schedule, allocate the unallowed loss from
deductions and losses for each activity If the unallowed loss is reported on one among the net losses as follows.
among Form 1120 deductions and any form or schedule, skip the following
losses to be reported on Form 4797, or example and complete Worksheet 4.

Instructions for Form 8810 (2023) -9-

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                  Worksheet 4—Allowed Deductions and Losses                                   Keep for Your Records
Name of Activity:                                                                             (c) Unallowed  (d) Allowed 
                                                                 (a) Deductions and 
                                                                                    (b) Ratio Deductions and Deductions and 
                                                                 Losses
                                                                                              Losses         Losses
1. Form 1120 deductions:
   a. Cost of goods sold . . . . . . . . . . . . . . . .
   b. Compensation of officers . . . . . . . . . . .
   c. Salaries and wages . . . . . . . . . . . . . . .
   d. Repairs and maintenance . . . . . . . . . . .
   e. Bad debts . . . . . . . . . . . . . . . . . . . . . .
   f. Rents . . . . . . . . . . . . . . . . . . . . . . . . . .
   g. Taxes and licenses . . . . . . . . . . . . . . . .
   h. Interest . . . . . . . . . . . . . . . . . . . . . . . .
   i. Depreciation . . . . . . . . . . . . . . . . . . . . .
   j. Depletion . . . . . . . . . . . . . . . . . . . . . . .
   k. Advertising . . . . . . . . . . . . . . . . . . . . .
   l. Other deductions . . . . . . . . . . . . . . . . .

   Total Form 1120 deductions . . . . . . . . .                ▶                    1.00
2. Schedule D and Form 8949 losses . . . . . .
3. Form 4797 losses . . . . . . . . . . . . . . . . . .
Name of Activity:                                                                             (c) Unallowed  (d) Allowed 
                                                                 (a) Deductions and 
                                                                                    (b) Ratio Deductions and Deductions and 
                                                                 Losses
                                                                                              Losses         Losses
1. Form 1120 deductions:
   a. Cost of goods sold . . . . . . . . . . . . . . . .
   b. Compensation of officers . . . . . . . . . . .
   c. Salaries and wages . . . . . . . . . . . . . . .
   d. Repairs and maintenance . . . . . . . . . . .
   e. Bad debts . . . . . . . . . . . . . . . . . . . . . .
   f. Rents . . . . . . . . . . . . . . . . . . . . . . . . . .
   g. Taxes and licenses . . . . . . . . . . . . . . . .
   h. Interest . . . . . . . . . . . . . . . . . . . . . . . .
   i. Depreciation . . . . . . . . . . . . . . . . . . . . .
   j. Depletion . . . . . . . . . . . . . . . . . . . . . . .
   k. Advertising . . . . . . . . . . . . . . . . . . . . .
   l. Other deductions . . . . . . . . . . . . . . . . .

   Total Form 1120 deductions . . . . . . . . .                ▶                    1.00
2. Schedule D and Form 8949 losses . . . . . .
3. Form 4797 losses . . . . . . . . . . . . . . . . . .

                                                                 -10-                         Instructions for Form 8810 (2023)

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Example. The corporation has one column (a) by the total of all of the Form gain from passive activities of the same
passive activity. The activity has an 1120 deductions in column (a) and enter PTP. Any unallowed loss from a PTP
unallowed loss of $18,000 in Worksheet 3, the ratio for each of the deductions in passive activity is carried forward and
column (c), and the following net losses column (b). The total of the ratios must allowed in a tax year when the corporation
and net gain. equal 1.00. has passive income from the same PTP or
when the corporation disposes of its entire
Column (c). Allocate the portion of the
interest in that PTP to an unrelated person
Form 1120 loss in Worksheet 3, column (c), among
in a fully taxable transaction.
Gross receipts $100,000 the Form 1120 deductions by multiplying
Deductions 120,000 the unallowed loss attributable to the total Income from passive activities the
Net loss ($20,000) Form 1120 deductions by each of the corporation holds through a PTP cannot
ratios in column (b). Enter the portion of be used to offset losses from passive
the unallowed loss in Worksheet 3, column activities the corporation holds through
Form 8949 Form 4797 (c), that is attributable to a Form 8949 (or another PTP or losses from any other
Gain $1,000 Gain $5,000 Schedule D (Form 1120)) or Form 4797 passive activities.
Loss (2,000) Loss (2,000) loss in column (c) of this worksheet.
PAL rules for partners in PTPs. Do not
Net loss ($1,000) Net gain $3,000 Column (d). Subtract column (c) from include any income, gains, deductions, or
column (a) and enter the results in this losses from PTP passive activities on
column. Enter the deductions allowed for Form 8810. Instead, use the following
Add the net losses of $20,000 and Form 1120 on the proper lines of Form rules to figure and report income, gains,
$1,000, for a total of $21,000. Divide the 1120. Enter the allowed losses on the deductions, and losses from passive
net loss reported on each form by the total appropriate forms. activities held through each PTP that the
of the net losses, and multiply the result by corporation owned an interest in during
the unallowed loss of $18,000, as shown Publicly Traded the tax year.
below.
Partnerships (PTPs) 1. Combine any current year income,
A PTP is a partnership whose interests are gains, deductions, and losses, and prior
Form $20,000 x $18,000 = $17,143 traded on an established securities market year unallowed losses to see if there is an
1120: $21,000 overall gain or loss. Include only the same
or are readily tradable on a secondary
market (or its substantial equivalent). types of income and losses that would be
included in figuring net income or loss
An established securities market from a non-PTP passive activity (see
Form $1,000 x $18,000 = $857 includes any national securities exchange Passive Activity Income and Deductions,
8949: $21,000
and any local exchange registered under earlier).
the Securities Exchange Act of 1934 or
On Form 4797, report the $2,000 loss exempted from registration because of the 2. If there is an overall gain, the net gain
and the $5,000 gain. On Worksheet 4, limited volume of transactions. It also portion (total income in excess of total
enter the $17,143 of unallowed deductions includes any over-the-counter market. deductions and losses) is nonpassive
allocated to Form 1120 in column (c) on income. Report the income, deductions,
A secondary market generally exists
the line for total Form 1120 deductions. and losses on the forms and schedules
where a person stands ready to make a
Enter the $857 of unallowed Form 8949 normally used.
market in the interest. An interest is
losses in column (c) of line 2. Use 3. If there is an overall loss (other than in
treated as readily tradable if the interest is
Worksheet 4 to allocate the $17,143 to the a year in which the corporation disposed
regularly quoted by persons, such as
Form 1120 deductions and show the of its entire interest in the PTP), the
brokers or dealers, who are making a
allowed and unallowed Form 8949 loss. deductions and losses are allowed to the
market in the interest.
Line 1, column (a). Enter the current extent of the income, and the excess
year deductions for each Form 1120 The substantial equivalent of a deductions and losses are carried forward
expense (Worksheet 1, lines 6a through secondary market exists where there is no for use in a future year when there is
6l) plus any prior year unallowed Form identifiable market maker, but holders of income to offset them. Report the income
1120 deduction for that activity. For interests have a readily available, regular, and the loss allowed to the extent of
example, if Worksheet 1, line 6i, shows and ongoing opportunity to sell or income on the form or schedule normally
current year depreciation for the activity of exchange interests through a public used.
$2,200, and the activity had prior year means of obtaining or providing
unallowed depreciation of $1,200, enter information on offers to buy, sell, or Part II. 2023 Passive
$3,400 on Worksheet 4, line 1i, column exchange interests. Similarly, the
(a). substantial equivalent of a secondary Activity Credits
market exists where prospective buyers Use Form 8810, Part II, to figure the
Line 2, column (a). Enter any Form 8949 and sellers have the opportunity to buy, amount of credits allowed from passive
losses (or any Schedule D (Form 1120) sell, or exchange interests in a time frame activities for the current year and the
losses, as applicable) from Worksheet 1, and with the regularity and continuity that amount that is unallowed and carried
line 8, plus any prior year unallowed the existence of a market maker would forward.
losses from the 2022 Form 8949 for that provide.
activity. Worksheet 5
Special Instructions for PTPs
Line 3, column (a). Enter any Form 4797 Complete Worksheet 5 before completing
losses from Worksheet 1, line 9, plus any Section 469(k) provides that the passive Part II. Use Worksheet 5 to figure the
prior year unallowed Form 4797 losses for activity rules and limitations must be amounts to enter on Form 8810, lines 5a
that activity. applied separately to items from each PTP. and 5b.
Line 1, column (b). Divide each of the Losses from passive activities the Column (a). Convert any current year
individual Form 1120 deductions shown in corporation holds through a PTP can qualified expenditures into credits and
generally be used only to offset income or complete Form 3800, General Business

Instructions for Form 8810 (2023) -11-

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Worksheet 5—For Form 8810, Lines 5a and 5b Keep for Your Records
(b) Prior Year (c) Total Credits
(a) Current Year
Name of Activity From Form Unallowed Credits (Add Columns (a)
Credits (Line 5a)
(Line 5b) and (b))

Totals. Enter on Form 8810, lines 5a and 5b . . . . . . . . . . . . . . . . . . . ▶

Credit, before beginning Worksheet 5. See Worksheet 6, column (c), located in the C. Net passive income. See instructions
Cooperatives next for special instructions 2022 Instructions for Form 8810 (adjusted for line C . . . . . . . . . . . . .
for certain cooperatives. if required). D. Subtract line C from line B. If zero or
less, enter -0- here and on
Enter the credits from Form 3800, lines For rules about prior year unallowed line E. . . . . . . . . . . . . . . .
2, 23, and 32, in Worksheet 5, column (a). credits from former passive activities, see E. Tax attributable to line D. Figure the
Enter "Form 3800, line" followed by the section 469(f). tax on the line D amount as if it were
appropriate line number (2, 23, or 32) in the corporation's only taxable
the “From Form” column. Separate the Line 7 income . . . . . . . . . . . . . . .
credits by activity and by type before If any of the following apply, enter -0- on F. Tax attributable to net passive
making entries in the worksheet. For line 7 and do not complete Part I or Part II income. Subtract line E from line A.
Closely held corporations that do not
example, a corporation has a distilled of the Computation for Line 7, later. have net active income and personal
spirits credit from each of two passive • The corporation is a personal service service corporations enter the
activities. Enter each distilled spirits credit corporation with a loss or zero on Form amount here and on Form 8810,
on separate lines in Worksheet 5, column 8810, line 1d. line 7 . . . . . . . . . . . . . . . .
(a). A corporation has a distilled spirits • The corporation is a personal service
credit and a disabled access credit from corporation with net passive income on
the same passive activity. Enter the Form 8810, line 1d, and the corporation
distilled spirits credit and the disabled has an overall loss from the entire
access credit on separate lines in disposition of a passive activity that is
Worksheet 5, column (a). equal to or greater than the net income on Part II. Tax Attributable to Net
line 1d. Active Income
Cooperatives. A closely held cooperative The corporation is a closely held
•
that is allocating part or all of a general corporation with a loss or zero on Form G. Enter amount from line E if Part I is
business credit to patrons will need to 8810, line 1d, and that amount is equal to completed. Otherwise, enter income
enter the credits being allocated on or greater than the net active income on tax before credits from Form 1120,
Worksheet 5 so that the passive activity Form 8810, line 2. Schedule J, line 2* . . . . . . . .
H. Taxable income from Form
•
rules can be applied before any part of the The corporation is a closely held 1120 . . . . . . . . . . . . . . . .
credit is allocated to patrons. For this corporation with net income on Form I. Net active income . . . . . . . . .
purpose, Form 3800 should be completed 8810, line 3, and the corporation has an J. Net passive income or loss. See
using only credits that will not be allocated overall loss from an entire disposition that instructions for line J . . . . . . .
to patrons. Credits that are being allocated is equal to or greater than the net income K. Combine lines I and J. If less than
to patrons should be picked up from the on line 3. zero, enter as a negative
separate credit forms. amount. . . . . . . . . . . . . . .
Column (b). In figuring this year's Computation for Line 7 L. Subtract line K from line H. If zero or
less, enter -0- here and on
passive activity credit, the corporation Part I. Tax Attributable to Net line M . . . . . . . . . . . . . . .
must take into account any credits from M. Tax attributable to line L. Figure the
passive activities disallowed for prior years Passive Income
tax on the line L amount as if it were
and carried forward to this year adjusted, if A. Income tax before credits from Form the corporation's only taxable
required, for items such as recaptured 1120, Schedule J, line 2* . . . . . income . . . . . . . . . . . . . . .
credits (see Regulations section B. Taxable income from Form N. Subtract line M from line G. If zero or
1.469-3(f)). Enter in Worksheet 5, column 1120 . . . . . . . . . . . . . . . . less, enter -0- here and on
(b), the prior year unallowed credits from line P . . . . . . . . . . . . . . . .

-12- Instructions for Form 8810 (2023)

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Worksheet 6—Allowed and Unallowed Credits Keep for Your Records
Use Worksheet 6 to allocate the allowed and unallowed credits for each activity.
Column (a). Enter the total credits from Worksheet 5, column (c).
Column (b). Divide each of the credits in column (a) by the total of all credits in column (a). The total of the ratios should equal 1.00.
Column (c). Multiply Form 8810, line 8, by the ratios in column (b) and enter the results in column (c). These are the unallowed credits for 2023.
Keep a record of these amounts so the credits can be carried to the next year.
Column (d). Subtract column (c) from column (a). These are the allowed credits for 2023. The amounts in this column are generally reported on
Form 3800. See Reporting Allowed Credits on Tax Return below.

Form To Be (c) Unallowed
Name of Activity (a) Credits (b) Ratio (d) Allowed Credits
Reported On Credits

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ 1.00

O. Enter the corporation's nonpassive See the instructions for the tax return Reporting Allowed Credits on
credits without regard to the tax filed for information on how to figure tax.
liability limitations . . . . . . . . . Tax Return
P. Tax attributable to net active income. Line C. Enter the net income, if any, from
Subtract line O from line N . . . . Form 8810, line 1d. If the corporation has Form 3800. Include on the applicable line
Q. Tax attributable to net passive an overall loss from the entire disposition (3, 24, or 33) of Form 3800 each passive
income and net active income. of a passive activity, the amount to enter activity general business credit allowed
Add lines F and P. Enter the result on line C is the net income from line 1d from Worksheet 6, column (d).
here and on Form 8810, line 7 . .
reduced by the overall loss, but not below Cooperatives. A closely held cooperative
* Subtract any decrease in taxes due zero. If the result is zero, skip the rest of that is allocating part or all of a general
(negative amount) from Form 8978 the Part I computation. business credit to patrons will show any
included on Form 1120, Schedule J, line 6, Line J. If the corporation has net passive allocation of the credit allowed from
from the amount entered on lines A and G. income, enter the amount from line C on Worksheet 6, column (d), on the
Computation for Line 7, Part I. This part this line. If the corporation has a net loss applicable lines of the separate credit
is used by personal service corporations from Form 8810, line 1d, enter that amount forms.
and closely held corporations with net on line J as a negative amount. Credits From PTPs
passive income. Line 9 A credit from a passive activity held
Computation for Line 7, Part II. This If the corporation has one type of credit, through a PTP is allowed to the extent of
part is used by closely held corporations the amount on line 9 is the credit allowed the tax attributable to net passive income
that have net active income. See the for the year. See Reporting Allowed from that PTP. See Publicly Traded
instructions for line 2, earlier, for the Credits on Tax Return, later. Partnerships (PTPs), earlier, for the
definition of net active income. If the definition of a PTP.
corporation has both net passive income If the corporation has more than one Do not enter credits from PTPs on
and net active income, complete Part I and type of credit or has credits from more Form 8810 or the worksheets. Instead, use
Part II and enter the amount from line Q on than one activity, use Worksheet 6 to the following steps to figure the allowed
Form 8810, line 7. figure how much of the credit on line 9 is and unallowed credits from passive
allowed for each activity. Keep a record of activities held through PTPs.
Note. When using taxable income in the the unallowed credit and the activity to
computation for line 7, it is not necessary which it belongs to figure the credit 1. Figure the tax attributable to net
to refigure items based on taxable income, allowed next year. passive income for each PTP with current
year passive activity credits or prior year
such as the contributions deduction, the unallowed credits.
dividends-received deduction, and the net
operating loss deduction. 2. Use the smaller of the tax
attributable to net income from passive
activities of the PTP or the credit (including

Instructions for Form 8810 (2023) -13-

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prior year unallowed credits) from passive reduction) to the extent that the credit has subject to the Paperwork Reduction Act
activities of the PTP as the amount not previously been allowed because of unless the form displays a valid OMB
allowed. Report the allowed credits on the the passive credit limitations. The amount control number. Books or records relating
forms normally used and keep a record of of the unallowed credit that can then be to a form or its instructions must be
the unallowed credits to be carried to the applied against tax is reduced by the retained as long as their contents may
next year. amount of the basis adjustment. Once the become material in the administration of
election is made, it is irrevocable. any Internal Revenue law. Generally, tax
returns and return information are
Part III. Election To No basis adjustment can be elected on confidential, as required by section 6103.
Increase Basis of Credit a partial disposition of the corporation's
Property interest in a passive activity or if the The time needed to complete and file
disposition is not fully taxable. The amount this form will vary depending on individual
Line 10 of any unallowed credit, however, may circumstances. The estimated burden for
Check the box on this line if the remain available to offset the tax business taxpayers filing this form is
corporation elects to increase the basis of attributable to net passive and net active approved under OMB control number
credit property it used in a passive activity income. 1545-0123 and is included in the
or former passive activity by the unallowed estimates shown in the instructions for
credit that reduced the property's basis. Paperwork Reduction Act Notice. We their business income tax return.
ask for the information on this form to carry
The election is available for a fully out the Internal Revenue laws of the If you have comments concerning the
taxable disposition of an entire interest in United States. You are required to give us accuracy of these time estimates or
an activity for which a basis adjustment the information. We need it to ensure that suggestions for making this form simpler,
was made as a result of placing in service you are complying with these laws and to we would be happy to hear from you. See
property for which a credit was taken. The allow us to figure and collect the right the instructions for the tax return with
corporation can elect to increase the basis amount of tax. which this form is filed.
of the credit property immediately before
the disposition (by an amount no greater You are not required to provide the
than the amount of the original basis information requested on a form that is

-14- Instructions for Form 8810 (2023)

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