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           Department of the Treasury                         Contents
           Internal Revenue Service
                                                              Future Developments . . . . . . . . . . . . . . . . . . . . . . .         1
                                                              Introduction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Publication 925
Cat. No. 64265X                                               Passive Activity Limits . . . . . . . . . . . . . . . . . . . . . .       3
                                                                Who Must Use These Rules?                 . . . . . . . . . . . . . . . 3
                                                                Passive Activities      . . . . . . . . . . . . . . . . . . . . . . . . 4
Passive                                                         Activities That Aren’t Passive Activities . . . . . . . . .             7
                                                                Passive Activity Income and Deductions . . . . . . . .                  9
                                                                Grouping Your Activities          . . . . . . . . . . . . . . . . . .   12
Activity                                                        Recharacterization of Passive Income                  . . . . . . . .   15
                                                                Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . .      17
                                                                How To Report Your Passive Activity Loss . . . . . .                    18
and
                                                              At-Risk Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . .    19
                                                                Who Is Affected?        . . . . . . . . . . . . . . . . . . . . . . .   19
At-Risk Rules
                                                                Activities Covered by the At-Risk Rules                 . . . . . . .   20
                                                                At-Risk Amounts       . . . . . . . . . . . . . . . . . . . . . . . .   21
For use in preparing
                                                                Amounts Not at Risk . . . . . . . . . . . . . . . . . . . . .           22
                                                                Reductions of Amounts at Risk               . . . . . . . . . . . . .   23
                                                                Recapture Rule
2023 Returns                                                                          . . . . . . . . . . . . . . . . . . . . . . . .   23
                                                              How To Get Tax Help       . . . . . . . . . . . . . . . . . . . . . . .   23
                                                              Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

                                                              Future Developments
                                                              For the latest developments related to Pub. 925, such 
                                                              as  legislation  enacted  after  it  was  published,  go  to 
                                                              IRS.gov/Pub925.

                                                              Reminders
                                                              Excess business loss limitation.              If you are a noncorpo-
                                                              rate  taxpayer  and  have  allowable  business  losses  after 
                                                              taking into account first the at-risk limitations and then the 
                                                              passive loss limitations (Form 8582), your losses may be 
                                                              subject to the excess business loss limitation. After taking 
                                                              into account all the other loss limitations, complete Form 
                                                              461, Limitation on Business Losses, to figure the amount 
                                                              of  your  excess  business  loss.  See  Form  461  and  its  in-
                                                              structions  for  details  on  the  excess  business  loss  limita-
                                                              tion.
                                                              Commercial  revitalization  deduction  (CRD).                             The 
                                                              120-month deduction period for rental real estate placed 
                                                              in service by December 31, 2009, has expired. See Form 
                                                              8582 and its instructions for reporting requirements for un-
                                                              used CRDs.
                                                              Changes in rules on grouping and definition of real 
                                                              property  trade  or  business.          T.D.  9943  revised  certain 
Get forms and other information faster and easier at:
• IRS.gov (English)         • IRS.gov/Korean (한국어)            rules in the Regulations under section 469.
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)       • Applicable date. The new rules apply to tax years be-
• IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (Tiếng Việt) 
                                                                ginning on or after March 22, 2021, but you may 

Mar 1, 2024

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chose to adopt these rules earlier. See Regulations rental, or other income-producing activity. The first part of
section 1.469-11(a)(1) and (4) for additional informa- the publication discusses the passive activity rules. The
tion on applicability dates and early adoption. If you second part discusses the at-risk rules. However, when
are a calendar year taxpayer, the new provision ap- you figure your allowable losses from any activity, you
plies to you beginning in calendar year 2022. must apply the at-risk rules before the passive activity
rules.
• Grouping rules. T.D. 9943 added Regulations sec-
tion 1.469-4(d)(6), which prohibits grouping of trading Comments and suggestions. We welcome your com-
activities described in Temporary Regulations section ments about this publication and suggestions for future
1.469-1T(e)(6) subject to section 163(d)(5)(A)(ii) in- editions.
volving a non-passive trade or business in which the You can send us comments through IRS.gov/
taxpayer does not materially participate with any other FormComments. Or, you can write to the Internal Revenue
activity or activities including other trading activities. Service, Tax Forms and Publications, 1111 Constitution
See Regulations section 1.469-4(d)(6) for more de- Ave. NW, IR-6526, Washington, DC 20224.
tails. Although we can’t respond individually to each com-
• Definition of real property trade or business. T.D. ment received, we do appreciate your feedback and will
9905 and 9943 expanded Regulations section consider your comments and suggestions as we revise
1.469-9(b)(2)(i) to define several terms used in deter- our tax forms, instructions, and publications. Don’t send
mining whether a trade or business is a real property tax questions, tax returns, or payments to the above ad-
trade or business for purposes of section 469(c)(7) dress.
(C). T.D. 9905 added Regulations sections 1.469-9(b)
Getting answers to your tax questions. If you have
(2)(ii)(H) and (I) defining real property operations and
a tax question not answered by this publication or the How
real property management. T.D. 9943 added Regula-
To Get Tax Help section at the end of this publication, go
tions sections 1.469-9(b)(2)(ii)(A) and (B) defining real
to the IRS Interactive Tax Assistant page at IRS.gov/
property development and real property redevelop-
Help/ITA where you can find topics by using the search
ment.
feature or viewing the categories listed.
Regrouping due to Net Investment Income Tax. You
may be able to regroup your activities if you’re subject to Getting tax forms, instructions, and publications.
the Net Investment Income Tax. See Regrouping Due to Go to IRS.gov/Forms to download current and prior-year
Net Investment Income Tax under Grouping Your Activi- forms, instructions, and publications.
ties, later, for more information. Ordering tax forms, instructions, and publications.
At-risk amounts. The following rules apply to amounts Go to IRS.gov/OrderForms to order current forms, instruc-
borrowed after May 3, 2004. tions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
• You must file Form 6198, At-Risk Limitations, if you’re
your order for forms and publications as soon as possible.
engaged in an activity included in (6) under Activities
Don’t resubmit requests you’ve already sent us. You can
Covered by the At-Risk Rules and you have borrowed
get forms and publications faster online.
certain amounts described in Certain borrowed
amounts excluded under At-Risk Amounts in this pub-
lication. Useful Items
You may want to see:
• You may be considered at risk for certain amounts de-
scribed in Certain borrowed amounts excluded under Publication
At-Risk Amounts secured by real property used in the
527
activity of holding real property (other than mineral 527 Residential Rental Property (Including Rental of
property) that, if nonrecourse, would be qualified non- Vacation Homes)
recourse financing. 541 541 Partnerships
Photographs of missing children. The Internal Reve-
nue Service is a proud partner with the National Center for Form (and Instructions)
Missing & Exploited Children® (NCMEC). Photographs of 4952 4952 Investment Interest Expense Deduction
missing children selected by the Center may appear in
this publication on pages that would otherwise be blank. 6198 6198 At-Risk Limitations
You can help bring these children home by looking at the 8582 8582 Passive Activity Loss Limitations
photographs and calling 800-THE-LOST (800-843-5678)
if you recognize a child. 8582-CR 8582-CR Passive Activity Credit Limitations
8810 8810 Corporate Passive Activity Loss and Credit
Limitations
Introduction 8949 8949 Sales and Other Dispositions of Capital Assets
This publication discusses two sets of rules that may limit
See How To Get Tax Help at the end of this publication for
the amount of your deductible loss from a trade, business,
information about getting these publications and forms.

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by multiplying the passive activity loss that’s disallowed for
the tax year by the fraction obtained by dividing:
Passive Activity Limits
1. The loss from the activity for the tax year; by
Who Must Use These Rules? 2. The sum of the losses for the tax year from all activi-
ties having losses for the tax year.
The passive activity rules apply to:
Use Part VII of Form 8582 to figure the ratable portion of
• Individuals, the loss from each activity that’s disallowed.
• Estates, Loss from an activity. The term “loss from an activity”
• Trusts (other than grantor trusts), means:
• Personal service corporations, and 1. The amount by which the passive activity deductions
(defined later) from the activity for the tax year exceed
• Closely held corporations. the passive activity gross income (defined later) from
Even though the rules don’t apply to grantor trusts, part- the activity for the tax year; reduced by
nerships, and S corporations directly, they do apply to the 2. Any part of such amount that’s allowed under the Spe-
owners of these entities. cial $25,000 allowance, later.
For information about personal service corporations If your passive activity gross income from significant
and closely held corporations, including definitions and participation passive activities (defined later) for the tax
how the passive activity rules apply to these corporations, year is more than your passive activity deductions from
see Form 8810 and its instructions. those activities for the tax year, those activities shall be
Before applying the passive activity limits, you treated, solely for purposes of figuring your loss from the
activity, as a single activity that doesn’t have a loss for
! must first determine the amount of the deductions such tax year. See Significant Participation Passive Activi-
CAUTION disallowed under the basis or at-risk rules. See
Passive Activity Deductions, later. ties, later.

Example. Terry holds interests in three passive activi-
Passive Activity Loss ties, A, B, and C. The gross income and deductions from
these activities for the tax year are as follows.
Generally, the passive activity loss for the tax year isn’t al-
lowed. However, there is a special allowance under which A B C Total
some or all of your passive activity loss may be allowed.
See Special $25,000 allowance, later. Gross income $7,000 $4,000 $12,000 $23,000
Definition of passive activity loss. Generally, your pas-
sive activity loss for the tax year is the excess of your pas- Deductions (16,000) (20,000) (8,000) (44,000)
sive activity deductions over your passive activity gross in-
come. See Passive Activity Income and Deductions, later.
Net income
For a closely held corporation, the passive activity loss (loss) ($9,000) ($16,000) $4,000 ($21,000)
is the excess of passive activity deductions over the sum
of passive activity gross income and net active income. Terry’s $21,000 passive activity loss for the tax year is
For details on net active income, see the Instructions for disallowed. Therefore, a ratable portion of the losses from
Form 8810. For the definition of passive activity gross in- activities A and B is disallowed. The disallowed portion of
come, see Passive Activity Income, later. For the definition each loss is as follows.
of passive activity deductions, see Passive Activity Deduc-
tions, later.
A: $21,000 x $9,000/$25,000 $7,560
Identification of Disallowed Passive Activity B: $21,000 x $16,000/$25,000 13,440
Deductions
Total $21,000
If all or a part of your passive activity loss is disallowed for
the tax year, you may need to allocate the disallowed pas- Allocation within loss activities. If all or any part of
sive activity loss among different passive activities and your loss from an activity is disallowed under Allocation of
among different deductions within a passive activity. disallowed passive activity loss among activities for the
tax year, a ratable portion of each of your passive activity
Allocation of disallowed passive activity loss among deductions (defined later), other than an excluded deduc-
activities. If all or any part of your passive activity loss is tion (defined next) from such activity is disallowed. The
disallowed for the tax year, a ratable portion of the loss (if ratable portion of a passive activity deduction is the
any) from each of your passive activities is disallowed. amount of the disallowed portion of the loss from the
The ratable portion of a loss from an activity is computed

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activity for the tax year multiplied by the fraction obtained the general business credit are subject to the passive ac-
by dividing: tivity rules.
1. The amount of such deduction; by See the Instructions for Form 8582-CR for more infor-
mation.
2. The sum of all of your passive activity deductions
(other than excluded deductions) from that activity
from the tax year. Publicly Traded Partnership

Excluded deductions. “Excluded deduction” means You must apply the rules in this part separately to your in-
any passive activity deduction that’s taken into account in come or loss from a passive activity held through a pub-
computing your net income from an item of property for a licly traded partnership (PTP). You must also apply the
tax year in which an amount of the taxpayer's gross in- limit on passive activity credits separately to your credits
come from such item of property is treated as not from a from a passive activity held through a PTP.
passive activity. See Recharacterization of Passive In- You can offset deductions from passive activities of a
come, later. PTP only against income or gain from passive activities of
Separately identified deductions. In identifying the the same PTP. Likewise, you can offset credits from pas-
deductions from an activity that are disallowed, you don’t sive activities of a PTP only against the tax on the net pas-
need to account separately for a deduction unless such sive income from the same PTP. This separate treatment
deduction may, if separately taken into account, result in rule also applies to a regulated investment company hold-
an income tax liability for any tax year different from that ing an interest in a PTP for the items attributable to that in-
which would result were such deduction not taken into ac- terest.
count separately. For more information on how to apply the passive activ-
Use Form 8582, Part IX, for any activity if you have pas- ity loss rules to PTPs, and on how to apply the limit on
sive activity deductions for that activity that must be sepa- passive activity credits to PTPs, see Publicly Traded Part-
rately identified. nerships (PTPs) in the instructions for Forms 8582 and
Deductions that must be accounted for separately in- 8582-CR, respectively.
clude (but aren’t limited to) the following deductions.
• Deductions that arise in a rental real estate activity in Passive Activities
tax years in which you actively participate in such ac-
tivity. See Active participation, later. There are two kinds of passive activities.
• Deductions that arise in a rental real estate activity in • Trade or business activities in which you don’t materi-
tax years in which you don’t actively participate in ally participate during the year.
such activity. See Active participation, later. • Rental activities, even if you do materially participate
• Losses from sales or exchanges of capital assets. in them, unless you’re a real estate professional.
• Section 1231 losses. See Section 1231 Gains and Material participation in a trade or business is discussed,
Losses in Pub. 544, Sales and Other Dispositions of later, under Activities That Aren’t Passive Activities.

Assets, for more information. Treatment of former passive activities. A former pas-
sive activity is an activity that was a passive activity in any
Carryover of Disallowed Deductions earlier tax year, but isn’t a passive activity in the current
tax year. You can deduct a prior-year unallowed loss from
In the case of an activity with respect to which any deduc- the activity up to the amount of your current-year net in-
tions or credits are disallowed for a tax year (the loss ac- come from the activity. Treat any remaining prior-year un-
tivity), the disallowed deductions are allocated among allowed loss like you treat any other passive loss.
your activities for the next tax year in a manner that rea- In addition, any prior-year unallowed passive activity
sonably reflects the extent to which each activity contin- credits from a former passive activity offset the allocable
ues the loss activity. The disallowed deductions or credits part of your current-year tax liability. The allocable part of
allocated to an activity under the preceding sentence are your current-year tax liability is that part of this year's tax
treated as deductions or credits from the activity for the liability that‘s allocable to the current-year net income from
next tax year. For more information, see Regulations sec- the former passive activity. You figure this after you reduce
tion 1.469-1(f)(4). your net income from the activity by any prior-year unal-
lowed loss from that activity (but not below zero).
Passive Activity Credit
Trade or Business Activities
Generally, the passive activity credit for the tax year is dis-
allowed. A trade or business activity is an activity that:
The passive activity credit is the amount by which the • Involves the conduct of a trade or business (that is,
sum of all your credits subject to the passive activity rules deductions would be allowable under section 162 of
exceed your regular tax liability allocable to all passive ac- the Internal Revenue Code if other limitations, such as
tivities for the tax year. Credits that are included in figuring the passive activity rules, didn’t apply);

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• Is conducted in anticipation of starting a trade or busi- c. Services that are similar to those commonly provi-
ness; or ded with long-term rentals of real estate, such as
cleaning and maintenance of common areas or
• Involves research or experimental expenditures that
routine repairs.
are deductible under Internal Revenue Code section
174 (or that would be deductible if you chose to de- 3. You provide extraordinary personal services in making
duct rather than capitalize them). the rental property available for customer use. Serv-
A trade or business activity doesn’t include a rental activity ices are extraordinary personal services if they’re per-
or the rental of property that’s incidental to an activity of formed by individuals and the customers' use of the
holding the property for investment. property is incidental to their receipt of the services.
4. The rental is incidental to a nonrental activity. The
You generally report trade or business activities on
rental of property is incidental to an activity of holding
Schedule C, F, or in Part II or III of Schedule E.
property for investment if the main purpose of holding
the property is to realize a gain from its appreciation
Rental Activities and the gross rental income from the property is less
than 2% of the smaller of the property's unadjusted
A rental activity is a passive activity even if you materially
basis or fair market value. The unadjusted basis of
participated in that activity, unless you materially participa-
property is its cost not reduced by depreciation or any
ted as a real estate professional. See Real Estate Profes-
other basis adjustment. The rental of property is inci-
sional under Activities That Aren’t Passive Activities, later.
dental to a trade or business activity if all of the follow-
An activity is a rental activity if tangible property (real or
ing apply.
personal) is used by customers or held for use by custom-
ers, and the gross income (or expected gross income) a. You own an interest in the trade or business activ-
from the activity represents amounts paid (or to be paid) ity during the year.
mainly for the use of the property. It doesn’t matter
b. The rental property was used mainly in that trade
whether the use is under a lease, a service contract, or
or business activity during the current year, or dur-
some other arrangement.
ing at least 2 of the 5 preceding tax years.
Exceptions. Your activity isn’t a rental activity if any of the c. Your gross rental income from the property is less
following apply. than 2% of the smaller of its unadjusted basis or
1. The average period of customer use of the property is fair market value. Lodging provided to an em-
7 days or less. You figure the average period of cus- ployee or the employee's spouse or dependents is
tomer use by dividing the total number of days in all incidental to the activity or activities in which the
rental periods by the number of rentals during the tax employee performs services if the lodging is fur-
year. If the activity involves renting more than one nished for the employer's convenience.
class of property, multiply the average period of cus- 5. You customarily make the rental property available
tomer use of each class by a fraction. The numerator during defined business hours for nonexclusive use
of the fraction is the gross rental income from that by various customers.
class of property and the denominator is the activity's
total gross rental income. The activity's average pe- 6. You provide the property for use in a nonrental activity
riod of customer use will equal the sum of the in your capacity as an owner of an interest in the part-
amounts for each class. nership, S corporation, or joint venture conducting
that activity.
2. The average period of customer use of the property,
as figured in (1) above, is 30 days or less and you pro- If you meet any of the exceptions listed above,
vide significant personal services with the rentals. TIP see the Instructions for Form 8582 for information
Significant personal services include only services about how to report any income or loss from the
performed by individuals. To determine if personal activity.
services are significant, all relevant facts and circum-
stances are taken into consideration, including the fre- Special $25,000 allowance. If you or your spouse ac-
quency of the services, the type and amount of labor tively participated in a passive rental real estate activity,
required to perform the services, and the value of the the amount of the passive activity loss that’s disallowed is
services relative to the amount charged for use of the decreased and you therefore can deduct up to $25,000 of
property. Significant personal services don’t include loss from the activity from your nonpassive income. This
the following. special allowance is an exception to the general rule disal-
lowing the passive activity loss. Similarly, you can offset
a. Services needed to permit the lawful use of the
credits from the activity against the tax on up to $25,000 of
property;
nonpassive income after taking into account any losses al-
b. Services to repair or improve property that would lowed under this exception.
extend its useful life for a period substantially lon- If you’re married, filing a separate return, and lived
ger than the average rental; and apart from your spouse for the entire tax year, your special
allowance can’t be more than $12,500. If you lived with

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your spouse at any time during the year and are filing a Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,300
separate return, you can’t use the special allowance to re- Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
duce your nonpassive income or tax on nonpassive in- Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
come. Rental loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,000)
The maximum special allowance is reduced if your
modified adjusted gross income exceeds certain amounts. The rental loss came from a house Stacey owned. Sta-
See Phaseout rule, later. cey advertised and rented the house to the current tenant.
Stacey also collected the rents and did the repairs or hired
Example. You are a single taxpayer. You have $70,000 someone to do them.
in wages, $15,000 income from a limited partnership, a Even though the rental loss is a loss from a passive ac-
$26,000 loss from rental real estate activities in which you tivity, Stacey can use the entire $4,000 loss to offset other
actively participated. Because your modified adjusted income because Stacey actively participated.
gross income is less than $100,000, you aren’t subject to Phaseout rule. The maximum special allowance of
the modified adjusted gross income phaseout rule. You $25,000 ($12,500 for married individuals filing separate
can use $15,000 of your $26,000 loss to offset your returns and living apart at all times during the year) is re-
$15,000 passive income from the partnership. You actively duced by 50% of the amount of your modified adjusted
participated in your rental real estate activities, so you can gross income that’s more than $100,000 ($50,000 if you’re
use the remaining $11,000 rental real estate loss to offset married filing separately). If your modified adjusted gross
$11,000 of your nonpassive income (wages). income is $150,000 or more ($75,000 or more if you’re
Active participation. Active participation isn’t the married filing separately), you generally can’t use the spe-
same as material participation (defined later). Active par- cial allowance. This is because the special allowance is
ticipation is a less stringent standard than material partici- reduced to $0 since the modified adjusted gross income is
pation. For example, you may be treated as actively partic- over the $100,000 amount.
ipating if you make management decisions in a significant Modified adjusted gross income for this purpose is your
and bona fide sense. Management decisions that count adjusted gross income figured without the following.
as active participation include approving new tenants, de- • Taxable social security and Tier 1 railroad retirement
ciding on rental terms, approving expenditures, and simi- benefits.
lar decisions.
Only individuals can actively participate in rental real • Deductible contributions to individual retirement ac-
estate activities. However, a decedent's estate is treated counts (IRAs) and section 501(c)(18) pension plans.
as actively participating for its tax years ending less than 2 • The exclusion from income of interest from qualified
years after the decedent's death, if the decedent would U.S. savings bonds used to pay qualified higher edu-
have satisfied the active participation requirement for the cation expenses.
activity for the tax year the decedent died.
A decedent's qualified revocable trust can also be trea- • The exclusion from income of amounts received from
an employer's adoption assistance program.
ted as actively participating if both the trustee and the ex-
ecutor (if any) of the estate choose to treat the trust as • Passive activity income or loss included on Form
part of the estate. The choice applies to tax years ending 8582.
after the decedent's death and before:
• Any rental real estate loss allowed because you mate-
• 2 years after the decedent's death if no estate tax re- rially participated in the rental activity as a Real Estate
turn is required, or Professional (as discussed, later, under Activities That
Aren’t Passive Activities).
• 6 months after the estate tax liability is finally deter-
mined if an estate tax return is required. • Any overall loss from a publicly traded partnership
The choice is irrevocable and can’t be made later than (see Publicly Traded Partnerships (PTPs) in the in-
the due date for the estate's first income tax return (includ- structions for Form 8582).
ing any extensions). • The deduction allowed for the deductible part of
Except as provided in regulations, limited partners self-employment tax.
aren’t treated as actively participating in a partnership's
rental real estate activities. • Foreign-derived intangible income and global intangi-
ble low-taxed income.
You aren’t treated as actively participating in a rental
real estate activity unless your interest in the activity (in- • The deduction allowed for interest on student loans.
cluding your spouse's interest) was at least 10% (by
value) of all interests in the activity throughout the year. Example. During 2023, you were unmarried and
Active participation isn’t required to take the low-in- weren’t a real estate professional. For 2023, you had
come housing credit or the rehabilitation investment credit $120,000 in salary and a $31,000 loss from your rental
from rental real estate activities. real estate activities in which you actively participated.
Your modified adjusted gross income is $120,000. When
Example. Stacey, a single taxpayer, had the following you file your 2023 return, you can deduct only $15,000 of
income and loss during the tax year.

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your passive activity loss. You must carry over the remain- partnership). It doesn’t matter whether you materially
ing $16,000 passive activity loss to 2024. You figure your participated in the activity for the tax year. However, if
deduction and carryover as follows. your liability was limited for part of the year (for exam-
ple, you converted your general partner interest to a
Adjusted gross income, modified as limited partner interest during the year) and you had a
required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000 net loss from the well for the year, some of your in-
come and deductions from the working interest may
Minus amount not subject to phaseout . . . . . . . . . . –100,000 be treated as passive activity gross income and pas-
sive activity deductions. See Temporary Regulations
Amount subject to phaseout rule . . . . . . . . . . . . . . $20,000 section 1.469-1T(e)(4)(ii).
Multiply by 50% (0.50). . . . . . . . . . . . . . . . . . . . . × 50%
3. The rental of a dwelling unit that you also used for per-
Required reduction to special allowance . . . . . . . . . . $10,000 sonal purposes during the year for more than the
greater of 14 days or 10% of the number of days dur-
Maximum special allowance. . . . . . . . . . . . . . . . . $25,000 ing the year that the home was rented at a fair rental.
Minus required reduction (see above) . . . . . . . . . . . –10,000 4. An activity of trading personal property for the account
of those who own interests in the activity. See Tempo-
Adjusted special allowance. . . . . . . . . . . . . . . . . . $15,000 rary Regulations section 1.469-1T(e)(6).
5. Rental real estate activities in which you materially
Passive loss from rental real estate . . . . . . . . . . . . . $31,000 participated as a real estate professional. See Real
Estate Professional, later.
Deduction allowable/Adjusted
special allowance (see above) . . . . . . . . . . . . . . . . –15,000 You shouldn’t enter income and losses from these
activities on Form 8582, as they are not passive
Amount that must be carried forward . . . . . . . . . . . . $16,000 CAUTION! activities. Instead, enter them on the forms or
schedules you would normally use.
Exceptions to the phaseout rules. A higher phase-
out range applies to rehabilitation investment credits from
rental real estate activities. For those credits, the phaseout Material Participation
of the $25,000 special allowance starts when your modi-
fied adjusted gross income exceeds $200,000 ($100,000 A trade or business activity isn’t a passive activity if you
if you’re a married individual filing a separate return and materially participated in the activity.

living apart at all times during the year). Material participation tests. You materially participated
There is no phaseout of the $25,000 special allowance in a trade or business activity for a tax year if you satisfy
for low-income housing credits. any of the following tests.
Ordering rules. If you have more than one of the ex- 1. You participated in the activity for more than 500
ceptions to the phaseout rules in the same tax year, you hours.
must apply the $25,000 phaseout against your passive ac-
tivity losses and credits in the following order. 2. Your participation was substantially all the participa-
tion in the activity of all individuals for the tax year, in-
1. Passive activity losses. cluding the participation of individuals who didn’t own
2. The portion of passive activity credits attributable to any interest in the activity.
credits other than the rehabilitation and low-income 3. You participated in the activity for more than 100
housing credits. hours during the tax year, and you participated at
3. The portion of passive activity credits attributable to least as much as any other individual (including indi-
the rehabilitation credit. viduals who didn’t own any interest in the activity) for
the year.
4. The portion of passive activity credits attributable to
the low-income housing credit. 4. The activity is a significant participation activity, and
you participated in all significant participation activi-
ties for more than 500 hours. A significant participa-
Activities That Aren’t Passive
tion activity is any trade or business activity in which
Activities you participated for more than 100 hours during the
year and in which you didn’t materially participate un-
The following aren’t passive activities.
der any of the material participation tests, other than
1. Trade or business activities in which you materially this test. See Significant Participation Passive Activi-
participated for the tax year. ties under Recharacterization of Passive Income,
later.
2. A working interest in an oil or gas well that you hold di-
rectly or through an entity that doesn’t limit your liabil- 5. You materially participated in the activity (other than
ity (such as a general partner interest in a by meeting this fifth test) for any 5 (whether or not

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consecutive) of the 10 immediately preceding tax Proof of participation. You can use any reason-
years. able method to prove your participation in an ac-
RECORDS tivity for the year. You don’t have to keep contem-
6. The activity is a personal service activity in which you
poraneous daily time reports, logs, or similar documents if
materially participated for any 3 (whether or not con-
you can establish your participation in some other way. For
secutive) preceding tax years. An activity is a per-
example, you can show the services you performed and
sonal service activity if it involves the performance of
the approximate number of hours spent by using an ap-
personal services in the fields of health (including vet-
pointment book, calendar, or narrative summary.
erinary services), law, engineering, architecture, ac-
counting, actuarial science, performing arts, consult-
ing, or any other trade or business in which capital Limited partners. If you owned an activity as a limited
isn’t a material income-producing factor. partner, you generally aren’t treated as materially partici-
pating in the activity. However, you’re treated as materially
7. Based on all the facts and circumstances, you partici- participating in the activity if you met test (1), (5), or (6) un-
pated in the activity on a regular, continuous, and sub- der Material participation tests, discussed earlier, for the
stantial basis during the year. tax year.
You didn’t materially participate in the activity under test You aren’t treated as a limited partner, however, if you
(7) if you participated in the activity for 100 hours or less were also a general partner in the partnership at all times
during the year. Your participation in managing the activity during the partnership's tax year ending with or within your
doesn’t count in determining whether you materially par- tax year (or, if shorter, during that part of the partnership's
ticipated under this test if: tax year in which you directly or indirectly owned your limi-
ted partner interest).
• Any person other than you received compensation for
managing the activity, or Retired or disabled farmer and surviving spouse of a
farmer. If you’re a retired or disabled farmer, you’re trea-
• Any individual spent more hours during the tax year
ted as materially participating in a farming activity if you
managing the activity than you did (regardless of
materially participated for 5 or more of the 8 years before
whether the individual was compensated for the man-
your retirement or disability. Similarly, if you’re a surviving
agement services).
spouse of a farmer, you’re treated as materially participat-
Participation. In general, any work you do in connection ing in a farming activity if the real property used in the ac-
with an activity in which you own an interest is treated as tivity meets the estate tax rules for special valuation of
participation in the activity. farm property passed from a qualifying decedent, and you
actively manage the farm.
Work not usually performed by owners. You don’t
treat the work you do in connection with an activity as par- Corporations. A closely held corporation or a personal
ticipation in the activity if both of the following are true. service corporation is treated as materially participating in
• The work isn’t work that’s customarily done by the an activity only if one or more shareholders holding more
owner of that type of activity. than 50% by value of the outstanding stock of the corpora-
tion materially participate in the activity.
• One of your main reasons for doing the work is to A closely held corporation can also satisfy the material
avoid the disallowance of any loss or credit from the participation standard by meeting the first two require-
activity under the passive activity rules. ments for the qualifying business exception from the
Participation as an investor. You don’t treat the work at-risk limits. See Special exception for qualified corpora-
you do in your capacity as an investor in an activity as par- tions under Activities Covered by the At-Risk Rules, later.
ticipation unless you’re directly involved in the day-to-day
management or operations of the activity. Work you do as Real Estate Professional
an investor includes:
Generally, rental activities are passive activities even if you
• Studying and reviewing financial statements or reports materially participated in them. However, if you qualified
on operations of the activity, as a real estate professional, rental real estate activities in
• Preparing or compiling summaries or analyses of the which you materially participated aren’t passive activities.
finances or operations of the activity for your own use, For this purpose, each interest you have in a rental real es-
and tate activity is a separate activity, unless you choose to
treat all interests in rental real estate activities as one ac-
• Monitoring the finances or operations of the activity in tivity. See the Instructions for Schedule E (Form 1040),
a nonmanagerial capacity. Supplemental Income and Loss, for information about
making this choice.
Spouse's participation. Your participation in an activity
includes your spouse's participation. This applies even if If you qualified as a real estate professional for 2023,
your spouse didn’t own any interest in the activity and you report income or losses from rental real estate activities in
and your spouse don’t file a joint return for the year. which you materially participated as nonpassive income or
losses, and complete line 43 of Schedule E (Form 1040).
If you also have an unallowed loss from these activities

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from an earlier year when you didn’t qualify, see Treatment or held for use, by customers and payments received
of former passive activities under Passive Activities, ear- must be principally for the customer's use of the property
lier. and not for the provision of other significant or extraordi-
nary personal services.
Qualifications. You qualified as a real estate professio-
nal for the year if you met both of the following require- Real property management. Real property manage-
ments. ment involves handling the day-to-day operations of a
trade or business relating to the maintenance and occu-
• More than half of the personal services you performed pancy of the real property affecting its availability or func-
in all trades or businesses during the tax year were tionality by a professional manager. The real property
performed in real property trades or businesses in must be used, or held for use, by customers and pay-
which you materially participated. ments received must be principally for the customer's use
• You performed more than 750 hours of services during of the property and not for the provision of other significant
the tax year in real property trades or businesses in or extraordinary personal services. A professional man-
which you materially participated. ager is a person who is not a direct or indirect owner of the
real property or properties and who is responsible for, on a
Don’t count personal services you performed as an em-
full-time basis, management and oversight of the real
ployee in real property trades or businesses unless you
property or properties.
were a 5% owner of your employer. You were a 5% owner
if you owned (or are considered to have owned) more than Closely held corporations. A closely held corpora-
5% of your employer's outstanding stock, outstanding vot- tion can qualify as a real estate professional if more than
ing stock, or capital or profits interest. 50% of the gross receipts for its tax year came from real
If you file a joint return, don’t count your spouse's per- property trades or businesses in which it materially partici-
sonal services to determine whether you met the preced- pated.
ing requirements. However, you can count your spouse's
participation in an activity in determining if you materially Passive Activity Income
participated.
and Deductions
Real property trades or businesses. A real property
trade or business is a trade or business that does any of In figuring your net income or loss from a passive activity,
the following with real property. take into account only passive activity income and passive
activity deductions.
• Develops or redevelops it.
• Constructs or reconstructs it. Self-charged interest. Certain self-charged interest in-
come or deductions may be treated as passive activity
• Acquires it.
gross income or passive activity deductions if the loan
• Converts it. proceeds are used in a passive activity.
Generally, self-charged interest income and deductions
• Rents or leases it.
result from loans between you and a partnership or S cor-
• Operates or manages it. poration in which you had a direct or indirect ownership in-
• Brokers it. terest. This includes both loans you made to the partner-
ship or S corporation and loans the partnership or S
Real property development. Real property develop- corporation made to you.
ment is a trade or business that includes the maintenance It also includes loans from one partnership or S corpo-
and improvement of raw land to make it suitable for subdi- ration to another partnership or S corporation if each
vision, further development, or construction of residential owner in the borrowing entity has the same proportional
or commercial buildings. Also included in real property de- ownership interest in the lending entity.
velopment is the establishment, cultivation, maintenance, Exception. The self-charged interest rules don’t apply
or improvement of timberlands. to your interest in a partnership or S corporation if the en-
Real property redevelopment. Real property rede- tity made an election under Regulations section
velopment is a trade or business that includes demolition, 1.469-7(g) to avoid the application of these rules. For
deconstruction, separation, and removal of existing build- more details on the self-charged interest rules, see Regu-
ings, landscaping, and infrastructure on a parcel of land to lations section 1.469-7.
return the land to a raw condition or otherwise prepare the
land for new development or construction, or for establish- Passive Activity Income
ment, cultivation, maintenance, or improvement of timber-
lands. Passive activity income includes all income from passive
activities and generally includes gain from disposition of
Real property operations. Real property operations an interest in a passive activity or property used in a pas-
involve handling the day-to-day operations of a trade or sive activity.
business relating to the maintenance and occupancy of
the real property affecting its availability or functionality by
a direct or indirect owner. The real property must be used,

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Passive activity income doesn’t include the following Disposition of property interests. Gain on the disposi-
items. tion of an interest in property is generally passive activity
income if, at the time of the disposition, the property was
• Income from an activity that isn’t a passive activity.
used in an activity that was a passive activity in the year of
These activities are discussed under Activities That
disposition. The gain generally isn’t passive activity in-
Aren’t Passive Activities, earlier.
come if, at the time of disposition, the property was used
• Portfolio income. This includes interest, dividends, an- in an activity that wasn’t a passive activity in the year of
nuities, and royalties not derived in the ordinary disposition. An exception to this general rule may apply if
course of a trade or business. It includes gain or loss you previously used the property in a different activity.
from the disposition of property that produces these
types of income or that’s held for investment. The ex- Exception for more than one use in the preceding
clusion for portfolio income doesn’t apply to 12 months. If you used the property in more than one ac-
self-charged interest treated as passive activity in- tivity during the 12-month period before its disposition, you
come. For more information on self-charged interest, must allocate the gain between the activities on a basis
see Self-charged interest, earlier. that reasonably reflects the property's use during that pe-
riod. Any gain allocated to a passive activity is passive ac-
• Personal service income. This includes salaries, wa- tivity income.
ges, commissions, self-employment income from For this purpose, an allocation of the gain solely to the
trade or business activities in which you materially par- activity in which the property was mainly used during that
ticipated, deferred compensation, taxable social se- period reasonably reflects the property's use if the fair
curity and other retirement benefits, and payments market value of your interest in the property isn’t more
from partnerships to partners for personal services. than the lesser of:
• Income from positive section 481 adjustments alloca- • $10,000, or
ted to activities other than passive activities. (Section
481 adjustments are adjustments that must be made • 10% of the total of the fair market value of your interest
due to changes in your accounting method.) in the property and the fair market value of all other
property used in that activity immediately before the
• Income or gain from investments of working capital. disposition.
• Income from an oil or gas property if you treated any Exception for substantially appreciated property.
loss from a working interest in the property for any tax The gain is passive activity income if the fair market value
year beginning after 1986 as a nonpassive loss, as of the property at disposition was more than 120% of its
discussed in item (2) under Activities That Aren’t Pas- adjusted basis and either of the following conditions ap-
sive Activities, earlier. This also applies to income plies.
from other oil and gas property, the basis of which is
determined wholly or partly by the basis of the prop- • You used the property in a passive activity for 20% of
erty in the preceding sentence. the time you held your interest in the property.
• Any income from intangible property, such as a patent, • You used the property in a passive activity for the en-
copyright, or literary, musical, or artistic composition, if tire 24-month period before its disposition.
your personal efforts significantly contributed to the If neither condition applies, the gain isn’t passive activity
creation of the property. income. However, it’s treated as portfolio income only if
• Any other income that must be treated as nonpassive you held the property for investment for more than half of
income. See Recharacterization of Passive Income, the time you held it in nonpassive activities.
later. For this purpose, treat property you held through a cor-
poration (other than an S corporation) or other entity
• Overall gain from any interest in a publicly traded part- whose owners receive only portfolio income as property
nership. See Publicly Traded Partnerships (PTPs) in held in a nonpassive activity and as property held for in-
the instructions for Form 8582. vestment. Also, treat the date you agree to transfer your
• State, local, and foreign income tax refunds. interest for a fixed or determinable amount as the disposi-
tion date.
• Income from a covenant not to compete. If you used the property in more than one activity during
• Reimbursement of a casualty or theft loss included in the 12-month period before its disposition, this exception
gross income to recover all or part of a prior-year loss applies only to the part of the gain allocated to a passive
deduction, if the loss deduction wasn’t a passive activ- activity under the rules described in the preceding discus-
ity deduction. sion.

• Alaska Permanent Fund dividends. Disposition of property converted to inventory. If you
• Cancellation of debt income, if at the time the debt is disposed of property that you had converted to inventory
discharged the debt isn’t allocated to passive activities from its use in another activity (for example, you sold con-
under the interest expense allocation rules. See Tem- dominium units you previously held for use in a rental ac-
porary Regulations section 1.163-8T for information tivity), a special rule may apply. Under this rule, you disre-
about the rules for allocating interest. gard the property's use as inventory and treat it as if it

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were still used in that other activity at the time of disposi- • Miscellaneous itemized deductions that may be disal-
tion. This rule applies only if you meet all of the following lowed because of the 2%-of-adjusted-gross-income
conditions. limit (expired for 2018 through 2025).
• At the time of disposition, you held your interest in the • Charitable contribution deductions.
property in a dealing activity (an activity that involves Net operating loss deductions.
•
holding the property or similar property mainly for sale
to customers in the ordinary course of a trade or busi- • Percentage depletion carryovers for oil and gas wells.
ness). • Capital loss carrybacks and carryovers.
• Your other activities included a nondealing activity (an • Items of deduction from a passive activity that are dis-
activity that doesn’t involve holding similar property for allowed under the limits on deductions that apply be-
sale to customers in the ordinary course of a trade or fore the passive activity rules. See Coordination with
business) in which you used the property for more other limitations on deductions that apply before the
than 80% of the period you held it. passive activity rules, later.
• You didn’t acquire or hold your interest in the property • Deductions and losses that would have been allowed
for the main purpose of selling it to customers in the for tax years beginning before 1987 but for basis or
ordinary course of a trade or business. at-risk limits.
• Net negative section 481 adjustments allocated to ac-
Passive Activity Deductions tivities other than passive activities. (Section 481 ad-
Generally, a deduction is a passive activity deduction for a justments are adjustments required due to changes in
tax year if and only if such deduction either: accounting methods.)
1. Arises in connection with the conduct of an activity • Casualty and theft losses, unless losses similar in
cause and severity recur regularly in the activity.
that’s a passive activity for the tax year, or
• The deduction allowed for the deductible part of
2. Is treated as a deduction from an activity for the tax
self-employment tax.
year because it was disallowed by the passive activity
rules in the preceding year and carried forward to the Coordination with other limitations on deductions
tax year. that apply before the passive activity rules. An item of
deduction from a passive activity that’s disallowed for a
For purposes of item (1) above, an item of deduction
tax year under the basis or at-risk limitations isn’t a pas-
arises in the tax year in which the item would be allowable
sive activity deduction for the tax year. The following sec-
as a deduction under the taxpayer's method of accounting
tions provide rules for figuring the extent to which items of
if taxable income for all tax years were determined without
deduction from a passive activity are disallowed for a tax
regard to the passive activity rules and without regard to
year under the basis or at-risk limitations.
the basis and at-risk limits. See Coordination with other
limitations on deductions that apply before the passive ac- Proration of deductions disallowed under basis
tivity rules, later. limitations. If any amount of your distributive share of a
partnership's loss for the tax year is disallowed under the
Passive activity deductions generally include any loss basis limitation, a ratable portion of your distributive share
from a disposition of property used in a passive activity at of each item of deduction or loss of the partnership is dis-
the time of the disposition and any loss from a disposition allowed for the tax year. For this purpose, the ratable por-
of less than your entire interest in a passive activity. tion of an item of deduction or loss is the amount of such
item multiplied by the fraction obtained by dividing:
Exceptions. Passive activity deductions don’t include the
following items. 1. The amount of your distributive share of partnership
loss that’s disallowed for the tax year, by
• Deductions for expenses (other than interest expense)
that are clearly and directly allocable to portfolio in- 2. The sum of your distributive shares of all items of de-
come. duction and loss of the partnership for the tax year.
• Qualified home mortgage interest, capitalized interest If any amount of your pro rata share of an S corpora-
expenses, and other interest expenses (other than tion's loss for the tax year is disallowed under the basis
self-charged interest) properly allocable to passive ac- limitation, a ratable portion of your pro rata share of each
tivities. For more information on self-charged interest, item of deduction or loss of the S corporation is disallowed
see Self-charged interest under Passive Activity In- for the tax year. For this purpose, the ratable portion of an
come and Deductions, earlier. item of deduction or loss is the amount of such item multi-
• Losses from dispositions of property that produce plied by the fraction obtained by dividing:
portfolio income or property held for investment. 1. The amount of your share of S corporation loss that’s
• State, local, and foreign income taxes. disallowed for the tax year, by
2. The sum of your pro rata shares of all items of deduc-
tion and loss of the corporation for the tax year.

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Proration of deductions disallowed under at-risk Grouping Your Activities
limitation. If any amount of your loss from an activity (as
defined in Activities Covered by the At-Risk Rules , later) is You can treat one or more trade or business activities, or
disallowed under the at-risk rules for the tax year, a ratable rental activities, as a single activity if those activities form
portion of each item of deduction or loss from the activity an appropriate economic unit for measuring gain or loss
is disallowed for the tax year. For this purpose, the ratable under the passive activity rules.
portion of an item of deduction or loss is the amount of
such item multiplied by the fraction obtained by dividing: Grouping is important for a number of reasons. If you
1. The amount of the loss from the activity that’s disal- group two activities into one larger activity, you need only
lowed for the tax year, by show material participation in the activity as a whole. But if
the two activities are separate, you must show material
2. The sum of all deductions from the activity for the tax participation in each one. On the other hand, if you group
year. two activities into one larger activity and you dispose of
one of the two, then you have disposed of only part of your
Separately identified items of deduction and loss.
entire interest in the activity. But if the two activities are
In identifying the items of deduction and loss from an ac-
separate and you dispose of one of them, then you have
tivity that aren’t disallowed under the basis and at-risk limi-
disposed of your entire interest in that activity.
tations (and that therefore may be treated as passive ac-
tivity deductions), you needn’t account separately for any Grouping can also be important in determining whether
item of deduction or loss unless such item may, if sepa- you meet the 10% ownership requirement for actively par-
rately taken into account, result in an income tax liability ticipating in a rental real estate activity.
different from that which would result were such item of
deduction or loss not taken into account separately.
Appropriate Economic Units
Items of deduction or loss that must be accounted for
separately include (but aren’t limited to) items of deduc-
Generally, to determine if activities form an appropriate
tion or loss that:
economic unit, you must consider all the relevant facts
1. Are attributable to separate activities. See Grouping and circumstances. You can use any reasonable method
Your Activities, later. of applying the relevant facts and circumstances in group-
ing activities. The following factors have the greatest
2. Arise in a rental real estate activity in tax years in
weight in determining whether activities form an appropri-
which you actively participate in such activity.
ate economic unit. All of the factors don’t have to apply to
3. Arise in a rental real estate activity in tax years in treat more than one activity as a single activity. The factors
which you don’t actively participate in such activity. that you should consider are:
4. Arose in a tax year beginning before 1987 and weren’t 1. The similarities and differences in the types of trades
allowed for such tax year under the basis or at-risk or businesses;
limitations.
2. The extent of common control;
5. Are taken into account under section 613A(d) (relating
3. The extent of common ownership;
to limitations on certain depletion deductions).
4. The geographical location; and
6. Are taken into account under section 1211 (relating to
the limitation on capital losses). 5. The interdependencies between or among activities,
which may include the extent to which the activities:
7. Are taken into account under section 1231 (relating to
property used in a trade or business and involuntary a. Buy or sell goods between or among themselves,
conversions). See Section 1231 Gains and Losses in
b. Involve products or services that are generally pro-
Pub. 544 for more information.
vided together,
8. Are attributable to pre-enactment interests in activi-
c. Have the same customers,
ties. See Temporary Regulations section
1.469-11T(c). d. Have the same employees, or
Excess business loss limitation that applies after e. Use a single set of books and records to account
the passive activity rules. If you are a noncorporate tax- for the activities.
payer and have allowable business losses after consider-
ing first the at-risk limitations and then the passive loss Example 1. Jackie owns a bakery and a movie theater
limitations (Form 8582), your losses may be subject to the at a shopping mall in Baltimore and a bakery and movie
excess business loss limitation. After considering all the theater in Philadelphia. Based on all the relevant facts and
other loss limitations, complete Form 461, Limitation on circumstances, there may be more than one reasonable
Business Losses, to figure the amount of your excess method for grouping Jackie's activities. For example,
business loss. See Form 461 and its instructions for de- Jackie may be able to group the movie theaters and the
tails on the excess business loss limitation. bakeries into:
• One activity,

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• A movie theater activity and a bakery activity, economic unit, as discussed earlier, Finley and Taylor can
group Plum Tower's grocery store rental and Healthy
• A Baltimore activity and a Philadelphia activity, or
Food's grocery business into a single trade or business
• Four separate activities. activity.
Example 2. Pat is a partner in ABC partnership, which Grouping of real and personal property rentals. In
sells nonfood items to grocery stores. Pat is also a partner general, you can’t treat an activity involving the rental of
in DEF (a trucking business). ABC and DEF are under real property and an activity involving the rental of per-
common control. The main part of DEF's business is sonal property as a single activity. However, you can treat
transporting goods for ABC. DEF is the only trucking busi- them as a single activity if you provide the personal prop-
ness in which Pat is involved. Based on the rules of this erty in connection with the real property or the real prop-
section, Pat treats ABC's wholesale activity and DEF's erty in connection with the personal property.
trucking activity as a single activity.
Certain activities may not be grouped: limited part-
Consistency and disclosure requirement. Generally, nerships and limited entrepreneurs. In general, if you
when you group activities into appropriate economic units, own an interest as a limited partner or a limited entrepre-
you may not regroup those activities in a later tax year. neur in one of the following activities, you may not group
You must meet any disclosure requirements of the IRS that activity with any other activity in another type of busi-
when you first group your activities and when you add or ness.
dispose of any activities in your groupings. • Holding, producing, or distributing motion picture films
However, if the original grouping is clearly inappropriate or video tapes.
or there is a material change in the facts and circumstan-
ces that makes the original grouping clearly inappropriate, • Farming.
you must regroup the activities and comply with any dis- • Leasing any section 1245 property (as defined in sec-
closure requirements of the IRS. tion 1245(a)(3) of the Internal Revenue Code). For a
See Disclosure Requirement, later. list of section 1245 property, see Section 1245 prop-
erty under Activities Covered by the At-Risk Rules,
Regrouping by the IRS. If any of the activities resulting later.
from your grouping isn’t an appropriate economic unit and
one of the primary purposes of your grouping (or failure to • Exploring for, or exploiting, oil and gas resources.
regroup) is to avoid the passive activity rules, the IRS may • Exploring for, or exploiting, geothermal deposits.
regroup your activities.
If you own an interest as a limited partner or a limited
Rental activities. In general, you can’t group a rental ac- entrepreneur in an activity described in the list above, you
tivity with a trade or business activity. However, you can may group that activity with another activity in the same
group them together if the activities form an appropriate type of business if the grouping forms an appropriate eco-
economic unit and: nomic unit, as discussed earlier.
• The rental activity is insubstantial in relation to the Limited entrepreneur. A limited entrepreneur is a
trade or business activity; person who:
• The trade or business activity is insubstantial in rela- • Has an interest in an enterprise other than as a limited
tion to the rental activity; or partner, and
• Each owner of the trade or business activity has the • Doesn’t actively participate in the management of the
same ownership interest in the rental activity, in which enterprise.
case the part of the rental activity that involves the
Certain activities may not be grouped: trading ac-
rental of items of property for use in the trade or busi-
tivities. A trading activity of trading personal property is
ness activity may be grouped with the trade or busi-
not a passive activity. Personal property is any personal
ness activity.
property that is actively traded (for example, financial se-
Example. Finley and Taylor are married and file a joint curities). A taxpayer who does not materially participate in
return. Healthy Food, an S corporation, is a grocery store a trading activity is prohibited from grouping the activity
business. Finley is Healthy Food's only shareholder. Plum with any other activity including any other trading activity.
Tower, an S corporation, owns and rents out the building. The prohibition on grouping is effective for tax years be-
Taylor is Plum Tower's only shareholder. Plum Tower rents ginning on or after March 22, 2021. If you are a calendar
part of its building to Healthy Food. Plum Tower's grocery year taxpayer, the new provisions apply to you beginning
store rental business and Healthy Food's grocery busi- in calendar year 2022.
ness aren’t insubstantial in relation to each other.
Activities conducted through another entity. A per-
Finley and Taylor file a joint return, so they’re treated as
sonal service corporation, closely held corporation, part-
one taxpayer for purposes of the passive activity rules.
nership, or S corporation must group its activities using
The same owner (Finley and Taylor) owns both Healthy
the rules discussed in this section. Once the entity groups
Food and Plum Tower with the same ownership interest
(100% in each). If the grouping forms an appropriate

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its activities, you, as the partner or shareholder of the en-     Regrouping on an amended return.  You may regroup 
tity, may group those activities (following the rules of this     your activities on an amended tax return, but only if you 
section):                                                         were not subject to the NIIT on your original return (or pre-
                                                                  viously amended return). You are eligible if:
•  With each other,
•  With activities conducted directly by you, or                  1. You were not previously subject to the NIIT for the tax 
                                                                  year for which you are filing an amended return or any 
•  With activities conducted through other entities.              prior tax year;
       You  may  not  treat  activities  grouped  together  by    2. The changes on the amended return cause you to be 
!      the entity as separate activities.                         subject to the NIIT for the first time beginning in the 
CAUTION
                                                                  tax year for which you are amending the return;
Personal  service  and  closely  held  corporations.              3. The limitation period for assessments under Code 
You may group an activity conducted through a personal            section 6501 hasn’t ended;
service or closely held corporation with your other activi-
ties  only  to  determine  whether  you  materially  or  signifi- 4. The changes on your amended return cause the 
cantly  participated  in  those  other  activities.  See Material amount on Form 8960, line 12, of your amended re-
Participation, earlier, and Significant Participation Passive     turn to be greater than zero; and
Activities, later.                                                5. The changes on your amended return cause the 
Publicly  traded  partnership  (PTP).     You  may  not           amount on Form 8960, line 13, of your amended re-
group activities conducted through a PTP with any other           turn to be greater than the amount entered on Form 
activity,  including  an  activity  conducted  through  another   8960, line 14.
PTP.                                                              This rule applies equally to changes to modified adjus-
                                                                  ted gross income or net investment income upon an IRS 
Partial dispositions. If you dispose of substantially all of 
                                                                  examination.
an activity during your tax year, you may treat the part dis-
posed of as a separate activity. However, you can do this         Manner of regrouping.   If you regroup your activities un-
only if you can show with reasonable certainty:                   der this rule, you must attach to your original or amended 
•  The amount of deductions and credits disallowed in             return,  as  applicable,  a  statement  that  satisfies  the  re-
   prior years under the passive activity rules that’s allo-      quirements described in Regrouping under Disclosure Re-
   cable to the part of the activity disposed of, and             quirement, later.
•  The amount of gross income and any other deduc-
   tions and credits for the current tax year that are allo-      Disclosure Requirement
   cable to the part of the activity disposed of.
                                                                  For tax years beginning after January 24, 2010, the follow-
                                                                  ing disclosure requirements for groupings apply. You’re re-
                                                                  quired to report certain changes to your groupings that oc-
Regrouping Due to Net Investment Income                           cur during the tax year to the IRS. If you fail to report these 
Tax                                                               changes, each trade or business activity or rental activity 
                                                                  will be treated as a separate activity. You will be consid-
You may be able to regroup your activities, as described          ered to have made a timely disclosure if you filed all affec-
below, if you’re subject to the Net Investment Income Tax         ted income tax returns consistent with the claimed group-
(NIIT) for the first time. For detailed information, see Regu-    ing and make the required disclosure on the income tax 
lations section 1.469-11(b)(3)(iv).                               return for the year in which you first discovered the failure 
                                                                  to  disclose.  If  the  IRS  discovered  the  failure  to  disclose, 
Regrouping  on  an  original  return.     Under  the  NIIT        you  must  have  reasonable  cause  for  not  making  the  re-
“fresh start” election, you may regroup for the first tax year    quired disclosure.
you are subject to the NIIT (without regard to the effect of 
regrouping). You may regroup only once under this elec-           New  grouping.   You  must  file  a  written  statement  with 
tion and that regrouping will apply to the tax year for which     your  original  income  tax  return  for  the  first  tax  year  in 
you regroup and all future tax years. You are eligible to re-     which two or more activities are originally grouped into a 
group if:                                                         single activity. The statement must provide the names, ad-
1. You were not previously subject to the NIIT;                   dresses,  and  employer  identification  numbers  (EINs),  if 
                                                                  applicable, for the activities being grouped as a single ac-
2. The amount you would have entered on Form 8960,                tivity. In addition, the statement must contain a declaration 
   line 12, without the regrouping, would have been               that  the  grouped  activities  make  up  an  appropriate  eco-
   greater than zero; and                                         nomic unit for the measurement of gain or loss under the 
                                                                  passive activity rules.
3. The amount you would have entered on Form 8960, 
   line 13, without the regrouping, would have been               Addition to an existing grouping. You must file a writ-
   greater than the amount you would have entered on              ten statement with your original income tax return for the 
   Form 8960, line 14, without the regrouping.                    tax  year  in  which  you  add  a  new  activity  to  an  existing 

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group. The statement must provide the name, address, losses from the activity to determine if you have a net loss
and EIN, if applicable, for the activity that’s being added or net income from that activity.
and for the activities in the existing group. In addition, the
statement must contain a declaration that the activities If the result is a net loss, treat the income and losses
make up an appropriate economic unit for the measure- the same as any other income or losses from that type of
ment of gain or loss under the passive activity rules. passive activity (trade or business activity or rental activ-
ity).
Regrouping. You must file a written statement with your
original income tax return for the tax year in which you re- If the result is net income, don’t enter any of the income
group the activities. The statement must provide the or losses from the activity or property on Form 8582 or its
names, addresses, and EINs, if applicable, for the activi- separate parts, as they are recharacterized as nonpas-
ties that are being regrouped. If two or more activities are sive. Instead, enter income or losses on the form and
being regrouped into a single activity, the statement must schedules you normally use. However, see Significant
contain a declaration that the regrouped activities make Participation Passive Activities, later, if the activity is a sig-
up an appropriate economic unit for the measurement of nificant participation passive activity and you also have a
gain or loss under the passive activity rules. In addition, net loss from a different significant participation passive
the statement must contain an explanation of the material activity.

change in the facts and circumstances that made the orig- Limit on recharacterized passive income. The total
inal grouping clearly inappropriate. amount that you treat as nonpassive income under the
Groupings by partnerships and S corporations. Part- rules described later in this discussion for significant par-
nerships and S corporations aren’t subject to the rules for ticipation passive activities, rental of nondepreciable prop-
new grouping, addition to an existing grouping, or re- erty, and equity-financed lending activities can’t exceed
grouping. Instead, they must comply with the disclosure the greatest amount that you treat as nonpassive income
instructions for grouping activities provided in their Form under any one of these rules.

1065, U.S. Return of Partnership Income, or Form 1120-S, Investment income and investment expense. To fig-
U.S. Income Tax Return for an S Corporation, whichever is ure your investment interest expense limitation on Form
applicable. 4952, treat as investment income any net passive income
The partner or shareholder isn’t required to make a recharacterized as nonpassive income from rental of non-
separate disclosure of the groupings disclosed by the en- depreciable property, equity-financed lending activity, or li-
tity unless the partner or shareholder: censing of intangible property by a pass-through entity.
• Groups together any of the activities that the entity
doesn’t group together, Significant Participation
• Groups the entity's activities with activities conducted Passive Activities
directly by the partner or shareholder, or
A significant participation passive activity is any trade or
• Groups an entity's activities with activities conducted business activity in which you participated for more than
through another entity. 100 hours during the tax year but didn’t materially partici-
A partner or shareholder may not treat activities grou- pate.
ped together by the entity as separate activities.
If your gross income from all significant participation
passive activities is more than your deductions from those
Recharacterization
activities, a part of your net income from each significant
of Passive Income participation passive activity is treated as nonpassive in-
come.
Net income from the following passive activities may have
to be recharacterized and excluded from passive activity Corporations. An activity of a personal service corpora-
income. tion or closely held corporation is a significant participa-
• Significant participation passive activities, tion passive activity if both of the following statements are
true.
• Rental of property when less than 30% of the unadjus-
ted basis of the property is subject to depreciation, • The corporation isn’t treated as materially participating
in the activity for the year.
• Equity-financed lending activities,
• One or more individuals, each of whom is treated as
• Rental of property incidental to development activities, significantly participating in the activity, directly or indi-
• Rental of property to nonpassive activities, and rectly, hold (in total) more than 50% (by value) of the
corporation's outstanding stock.
• Licensing of intangible property by
pass-through entities. Worksheet A. Complete Worksheet A. Significant Partici-
If you’re engaged in or have an interest in one of these ac- pation Passive Activities if you have income or losses from
tivities during the tax year (either directly or through a any significant participation activity. Begin by entering the
partnership or an S corporation), combine the income and name of each activity in the left column.

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Column (a).     Enter the number of hours you participa-           prior-year unallowed loss is the same as the cur-
ted in each activity and total the column.                         rent-year net income.
If the total is more than 500, don’t complete Worksheet 
                                                                   Column (c). Enter net income (if any) from the activity. 
A  or  B.  None  of  the  activities  are  passive  activities  be-
                                                                   Net income means the excess of the current-year net in-
cause  you  satisfy  test  4  for  material  participation.  (See 
                                                                   come from the activity over any prior-year unallowed los-
Material participation tests, earlier.) Report all the income 
                                                                   ses from the activity.
and losses from these activities on the forms and sched-
ules you normally use. Don’t include the income and los-           Column  (d).      Combine  amounts  in  the Totals  row  for 
ses on Form 8582.                                                  columns (b) and (c) and enter the total net income or net 
                                                                   loss in the Totals row of column (d). If column (d) is a net 
Column (b).     Enter the net loss, if any, from the activity. 
                                                                   loss, skip Worksheet B. Significant Participation Activities 
Net loss from an activity means either:
                                                                   With Net Income. Include the income and losses in Part V 
•  The activity's current-year net loss (if any) plus              of Form 8582 (or Worksheet 2 in the Instructions for Form 
   prior-year unallowed losses (if any), or                        8810).
•  The excess of prior-year unallowed losses over the 
   current-year net income (if any). Enter -0- here if the 

Worksheet A. Significant Participation Passive Activities                                Keep for Your Records

         Name of activity             (a) Hours of         (b) Net loss        (c) Net income (d) Combine totals of 
                                      participation                                                       cols. (b) and (c)
                                                      (                  )
                                                      (                  )
                                                      (                  )
                                                      (                  )
                                                      (                  )
                                                      (                  )
                                                      (                  )
                          Totals                      (                  )

Worksheet B. On   Worksheet B. Significant Participation           Rental of Nondepreciable Property
Activities With Net Income, list only the significant partici-
pation passive activities that have net income as shown in         If you have net passive income (including prior-year unal-
column (c) of Worksheet A.                                         lowed losses) from renting property in a rental activity, and 
                                                                   less than 30% of the unadjusted basis of the property is 
Column (a).     Enter the net income of each activity from         subject to depreciation, you treat the net passive income 
column (c) of Worksheet A.                                         as nonpassive income.
Column (b).     Divide each of the individual net income 
amounts in column (a) by the total of column (a). The re-          Example.    Charlie  acquires  vacant  land  for  $300,000, 
sult is a ratio. In column (b), enter the ratio for each activity  constructs  improvements  at  a  cost  of  $100,000,  and 
as a decimal (rounded to at least three places). The total         leases  the  land  and  improvements  to  a  tenant.  Charlie 
of these ratios must equal 1.000.                                  then sells the land and improvements for $600,000, realiz-
                                                                   ing a gain of $200,000 on the disposition.
Column  (c).    Multiply  the  amount  in  the Totals  row  of     The unadjusted basis of the improvements ($100,000) 
column (d) of Worksheet A by each of the ratios in column          equals  25%  of  the  unadjusted  basis  of  all  property 
(b). Enter the results in column (c).                              ($400,000) used in the rental activity.
Column (d).     Subtract column (c) from column (a). To            Charlie's net passive income from the activity (which is 
this figure, add the amount of prior-year unallowed losses         figured  with  the  gain  from  the  disposition,  including  gain 
(if  any)  that  reduced  the  current-year  net  income.  Enter   from the improvements) is treated as nonpassive income.
the result in column (d). Enter these amounts on Part V of 
Form  8582  or  Worksheet  2  in  the  Instructions  for  Form 
8810. (See also Limit on recharacterized passive income, 
earlier.)

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Worksheet B. Significant Participation Activities With Net 
Income                                                                                Keep for Your Records
                                                                            (c) Nonpassive 
       Name of activity                                           (b) Ratio                       (d) Passive income 
                                  (a) Net income                            income
       with net income                                   (see instructions)                    (subtract col. (c) from col. (a))
                                                                            (see instructions) 
                                                                                                  
                        Totals                                    1.000

Equity-Financed                                                   Licensing of Intangible Property
Lending Activities                                                by Pass-Through Entities

If you have gross income from an equity-financed lending          Net  royalty  income  from  intangible  property  held  by  a 
activity,  the  lesser  of  the  net  passive  income  or  the    pass-through entity in which you own an interest may be 
equity-financed interest income is nonpassive income.             treated as nonpassive royalty income. This applies if you 
                                                                  acquired your interest in the pass-through entity after the 
For more information, see Temporary Regulations sec-              partnership, S corporation, estate, or trust created the in-
tion 1.469-2T(f)(4).                                              tangible property or performed substantial services or in-
                                                                  curred  substantial  costs  for  developing  or  marketing  the 
                                                                  intangible property.
Rental of Property Incidental
to a Development Activity                                          This recharacterization rule doesn’t apply if:
Net income from this type of activity will be treated as non-     1. The expenses reasonably incurred by the entity in de-
passive income if all of the following apply.                      veloping or marketing the property exceed 50% of the 
                                                                   gross royalties from licensing the property that are in-
• You recognize gain from the sale, exchange, or other             cludible in your gross income for the tax year, or
  disposition of the rental property during the tax year.
                                                                  2. Your share of the expenses reasonably incurred by 
• You started to rent the property less than 12 months             the entity in developing or marketing the property for 
  before the date of disposition.                                  all tax years exceeded 25% of the fair market value of 
• You materially participated or significantly participated        your interest in the intangible property at the time you 
  for any tax year in an activity that involved the perform-       acquired your interest in the entity.
  ance of services for the purpose of enhancing the 
  value of the property (or any other item of property if          For  purposes  of  (2)  above,  capital  expenditures  are 
  the basis of the property disposed of is determined in          taken into account for the entity's tax year in which the ex-
  whole or in part by reference to the basis of that item         penditure  is  chargeable  to  a  capital  account,  and  your 
  of property).                                                   share of the expenditure is figured as if it were allowed as 
                                                                  a deduction for the tax year.
For  more  information,  see  Regulations  section 
1.469-2(f)(5).                                                    Dispositions

                                                                  Any  passive  activity  losses  (but  not  credits)  that  haven’t 
Rental of Property to
                                                                  been allowed (including current-year losses) are generally 
a Nonpassive Activity                                             allowed in full in the tax year in which you dispose of your 
                                                                  entire  interest  in  the  passive  (or  former  passive)  activity. 
If you rent property to a trade or business activity in which     However, for the losses to be allowed, you must dispose 
you  materially  participated,  net  rental  income  from  the    of  your  entire  interest  in  the  activity  in  a  transaction  in 
property  is  treated  as  nonpassive  income.  This  rule        which all realized gain or loss is recognized. Also, the per-
doesn’t apply to net income from renting property under a         son acquiring the interest from you must not be related to 
written binding contract entered into before February 19,         you.
1988.  It  also  doesn’t  apply  to  property  described  earlier 
under  Rental of Property Incidental to a Development Ac-
tivity.

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If you have a capital loss on the disposition of an If you don’t dispose of your entire interest, the gain or
! interest in a passive activity, the loss may be limi- loss allocated to a passive activity is treated as passive
CAUTION ted. For individuals, your capital loss deduction is activity income or deduction in the year of disposition.
limited to the amount of your capital gains plus the lower This includes any gain recognized on a distribution of
of $3,000 ($1,500 in the case of a married individual filing money from the partnership that you receive in excess of
a separate return) or the excess of your capital losses over the adjusted basis of your partnership interest.
capital gains. See Pub. 544 for more information. These rules also apply to the disposition of stock in an
S corporation.
Example. Carter earned a $60,000 salary and owned
Dispositions by gift. If you give away your interest in a
one passive activity through a 5% interest in the B Limited
passive activity, the unused passive activity losses alloca-
Partnership. In 2023, Carter sold that entire partnership in-
ble to the interest can’t be deducted in any tax year. In-
terest to an unrelated person for $30,000. Carter’s adjus-
stead, the basis of the transferred interest must be in-
ted basis in the partnership interest was $42,000, and
creased by the amount of these losses.
Carter had carried over $2,000 of ordinary passive activity
deductions from the activity. Dispositions by death. If a passive activity interest is
Carter's deductible loss for 2023 is $5,000, figured as transferred because the owner dies, unused passive activ-
follows. ity losses are allowed (to a certain extent) as a deduction
Amount realized. . . . . . . . . . . . . . . . . . . . . . . . . $30,000 against the decedent's income in the year of death. The
decedent's losses are allowed only to the extent they ex-
Minus: adjusted basis . . . . . . . . . . . . . . . . . . . . . –42,000 ceed the amount by which the transferee's basis in the
Capital loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,000 passive activity has been increased under the rules for de-
termining the basis of property acquired from a decedent.
Minus: capital loss limit . . . . . . . . . . . . . . . . . . . . . –3,000
For example, if the basis of an interest in a passive activity
Capital loss carryover . . . . . . . . . . . . . . . . . . . . . $9,000 in the hands of a transferee is increased by $6,000 and
unused passive activity losses of $8,000 were allocable to
Allowable capital loss on sale . . . . . . . . . . . . . . . . . $3,000
the interest at the date of death, then the decedent's de-
Carryover losses allowable . . . . . . . . . . . . . . . . . . 2,000 duction for the tax year would be limited to $2,000 ($8,000
Total current deductible loss . . . . . . . . . . . . . . . . . $5,000 − $6,000).
If you inherited property from a decedent who died in
2010, special rules may apply if the executor of the estate
Carter deducts the $5,000 total current deductible loss filed Form 8939, Allocation of Increase in Basis for Prop-
in 2023 and must carry over the remaining $9,000 capital erty Acquired From a Decedent. For more information, see
loss, which isn’t subject to the passive activity loss limit. Pub. 4895, Tax Treatment of Property Acquired From a
Carter will treat it like any other capital loss carryover. Decedent Dying in 2010, which is available at
IRS.gov/pub/irs-prior/p4895--2011.pdf.
Installment sale of an entire interest. If you sell your
entire interest in a passive activity through an installment Partial dispositions. If you dispose of substantially all of
sale, to figure the loss for the current year that isn’t limited an activity during your tax year, you may be able to treat
by the passive activity rules, multiply your overall loss (not the part of the activity disposed of as a separate activity.
including losses allowed in prior years) by a fraction. The See Partial dispositions under Grouping Your Activities,
numerator of the fraction is the gain recognized in the cur- earlier.
rent year, and the denominator is the total gain from the
sale minus all gains recognized in prior years. How To Report Your
Passive Activity Loss
Example. Riley has a total gain of $10,000 from the
sale of an entire interest in a passive activity. Under the in-
More than one form or schedule may be required for re-
stallment method, Riley reports $2,000 of gain each year,
porting your passive activities. The actual number of forms
including the year of sale. For the first year, 20%
depends on the number and types of activities you must
(2,000/10,000) of the losses are allowed. For the second
report. Some forms and schedules that may be required
year, 25% (2,000/8,000) of the remaining losses are al-
are:
lowed.
• Schedule C (Form 1040), Profit or Loss From Busi-
Partners and S corporation shareholders. Generally, ness;
any gain or loss on the disposition of a partnership interest
must be allocated to each trade or business, rental, or in- • Schedule D (Form 1040), Capital Gains and Losses;
vestment activity in which the partnership owns an inter- • Schedule E (Form 1040), Supplemental Income and
est. If you dispose of your entire interest in a partnership, Loss;
the passive activity losses from the partnership that Schedule F (Form 1040), Profit or Loss From Farming;
•
haven’t been allowed are generally allowed in full. They
will also be allowed if the partnership (other than a PTP) • Form 4797, Sales of Business Property;
disposes of all the property used in that passive activity. • Form 6252, Installment Sale Income;

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• Form 8582, Passive Activity Loss Limitations; a. The partner's partnership interest, or
• Form 8582-CR, Passive Activity Credit Limitations; b. The shareholder's stock plus any loans the share-
and holder makes to the corporation,
• Form 8949, Sales and Other Dispositions of Capital 2. The at-risk rules, and
Assets.
3. The passive activity rules.
Regardless of the number or complexity of passive ac-
tivities you have, you should use only one Form 8582. If See Limitations on Losses, Deductions, and Credits in
you need additional lines for any of the Form 8582 parts, Partner's Instructions for Schedule K-1 (Form 1065) and
you can either use copies of page 1, page 2, and/or Shareholder's Instructions for Schedule K-1 (Form
page 3 of Form 8582, whichever is applicable, or your own 1120-S).
schedule that’s in the same format as the applicable part. See Coordination with other limitations on deductions
For examples and further information, see the Form that apply before the passive activity rules, earlier.
8582 instructions. See also Excess business loss limitation that applies
after the passive activity rules, earlier, for limitations that
may apply after an allowable passive activity loss is deter-
mined.
At-Risk Limits
Who Is Affected?
The at-risk rules limit your losses from most activities to
your amount at risk in the activity. You treat any loss that’s The at-risk limits apply to individuals (including partners
disallowed because of the at-risk limits as a deduction and S corporation shareholders), estates, trusts, and cer-
from the same activity in the next tax year. If your losses tain closely held C corporations.
from an at-risk activity are allowed, they’re subject to re-
capture in later years if your amount at risk is reduced be- Closely held C corporation. For the at-risk rules, a C
low zero. corporation is a closely held corporation if at any time dur-
You must apply the at-risk rules before the pas- ing the last half of the tax year, more than 50% in value of
its outstanding stock is owned, directly or indirectly, by or
! sive activity rules discussed in the first part of this for five or fewer individuals.
CAUTION publication.
To figure if more than 50% in value of the stock is
owned by five or fewer individuals, apply the following
Loss defined. A loss is the excess of allowable deduc-
rules.
tions from the activity for the year (including depreciation
or amortization allowed or allowable and disregarding the 1. Stock owned directly or indirectly by or for a corpora-
at-risk limits) over income received or accrued from the tion, partnership, estate, or trust is considered owned
activity during the year. Income doesn’t include income proportionately by its shareholders, partners, or bene-
from the recapture of previous losses (discussed, later, ficiaries.
under Recapture Rule).
2. An individual is considered to own the stock owned
Form 6198. Use Form 6198 to figure how much loss from directly or indirectly by or for their family. Family in-
an activity you can deduct. cludes only brothers and sisters (including half broth-
ers and half sisters), a spouse, ancestors, and lineal
1. File Form 6198 with your tax return if: descendants.
a. You have a loss from any part of an activity that’s 3. If a person holds an option to buy stock, they are con-
covered by the at-risk rules, and sidered to be the owner of that stock.
b. You aren’t at risk for some of your investment in 4. When applying rule (1) or (2), stock considered
the activity. owned by a person under rule (1) or (3) is treated as
2. File Form 6198 if you’re engaged in an activity inclu- actually owned by that person. Stock considered
ded in (6) under Activities Covered by the At-Risk owned by an individual under rule (2) isn’t treated as
Rules, later, and you have borrowed amounts descri- owned by the individual for again applying rule (2) to
bed in Certain borrowed amounts excluded under consider another the owner of that stock.
At-Risk Amounts, later. 5. Stock that may be considered owned by an individual
under either rule (2) or (3) is considered owned by the
Loss limits for partners and S corporation sharehold-
individual under rule (3).
ers. Separate limits may apply to a partner's or share-
holder's distributive share of an item of deduction or loss
from a partnership or S corporation, respectively. The lim-
its determine the amount each partner or shareholder can
deduct on their own return. These limits and the order in
which they apply are:
1. The adjusted basis of:

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Activities Covered furnished apartment is considered incidental to making
real property available as living accommodations.
by the At-Risk Rules
Exception for equipment leasing by a closely held
If you’re involved in one of the following activities as a corporation. If a closely held corporation is actively en-
trade or business or for the production of income, you’re gaged in equipment leasing, the equipment leasing is
subject to the at-risk rules. treated as a separate activity not covered by the at-risk
1. Holding, producing, or distributing motion picture films rules. A closely held corporation is actively engaged in
or video tapes. equipment leasing if 50% or more of its gross receipts for
the tax year is from equipment leasing. Equipment leasing
2. Farming. means the leasing, purchasing, servicing, and selling of
equipment that’s section 1245 property.
3. Leasing section 1245 property, including personal
However, equipment leasing doesn’t include the leas-
property and certain other tangible property that’s de-
ing of master sound recordings and similar contractual ar-
preciable or amortizable. See Section 1245 property,
rangements for tangible or intangible assets associated
later.
with literary, artistic, or musical properties, such as books,
4. Exploring for, or exploiting, oil and gas. lithographs of artwork, or musical tapes. A closely held
corporation can’t exclude these leasing activities from the
5. Exploring for, or exploiting, geothermal deposits (for
at-risk rules nor count them as equipment leasing for the
wells started after September 1978).
gross receipts test.
6. Any other activity not included in (1) through (5) that’s The equipment leasing exclusion also isn’t available for
carried on as a trade or business or for the production leasing activities related to other at-risk activities, such as
of income. motion picture films and video tapes, farming, oil and gas
properties, and geothermal deposits. For example, if a
Section 1245 property. Section 1245 property includes closely held corporation leases a video tape, it can’t ex-
any property that is or has been subject to depreciation or clude this leasing activity from the at-risk rules under the
amortization and is: equipment leasing exclusion.
1. Personal property, Controlled group of corporations. A controlled
2. Other tangible property (other than a building or its group of corporations is subject to special rules for the
structural components) that’s: equipment leasing exclusion. See section 465(c) of the In-
ternal Revenue Code.
a. Used in manufacturing, production, extraction, or
furnishing transportation, communications, electri- Special exception for qualified corporations. A quali-
cal energy, gas, water, or sewage disposal serv- fied corporation isn’t subject to the at-risk limits for any
ices; qualifying business carried on by the corporation. Each
qualifying business is treated as a separate activity.
b. A research facility used for the activities in (a); or
Qualified corporation. A qualified corporation is a
c. A facility used in any of the activities in (a) for the
closely held C corporation, defined earlier, that isn’t:
bulk storage of fungible commodities,
• A personal holding company, or
3. Real property (other than property described in (2))
with an adjusted basis that was reduced by certain • A personal service corporation (defined in section
amortization deductions listed in section 1245(a)(3) 269A(b) of the Internal Revenue Code, but determined
(C) of the Internal Revenue Code, by substituting 5% for 10%).
4. A single-purpose agricultural or horticultural structure, Qualifying business. A qualifying business is any ac-
or tive business if all of the following apply.
5. A storage facility (other than a building or its structural 1. During the entire 12-month period ending on the last
components) used for the distribution of petroleum. day of the tax year, the corporation had at least:
a. One full-time employee whose services were in
Exception for holding real property placed in service
the active management of the business, and
before 1987. The at-risk rules don’t apply to the holding
of real property placed in service before 1987. They also b. Three full-time nonowner employees whose serv-
don’t apply to the holding of an interest acquired before ices were directly related to the business. A non-
1987 in a pass-through entity engaged in holding real owner employee is an employee who doesn’t own
property placed in service before 1987. This exception more than 5% in value of the outstanding stock of
doesn’t apply to holding mineral property. the corporation at any time during the tax year.
Personal property and services that are incidental to (The rules for constructive ownership of stock in
making real property available as living accommodations section 318 of the Internal Revenue Code apply.
are included in the activity of holding real property. For ex- However, in applying these rules, an owner of 5%
ample, making personal property, such as furniture, and or more, rather than 50% or more, of the value of a
services available when renting a hotel or motel room or a corporation's stock is considered to own a

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proportionate share of any stock owned by the • Farms,
corporation.)
• Oil and gas properties, and
2. Deductions due to the business that are allowable to • Geothermal properties.
the corporation as business expenses and as contri-
butions to certain employee benefit plans for the tax For example, if a partnership or S corporation produces
year exceed 15% of the gross income from the busi- two films or video tapes, the partners or S corporation
ness. shareholders may treat the production of both films or
video tapes as one activity for purposes of the at-risk
3. The business isn’t an excluded business. Generally, rules.
an excluded business means equipment leasing as
defined, earlier, under Exception for equipment leas-
At-Risk Amounts
ing by a closely held corporation, and any business in-
volving the use, exploitation, sale, lease, or other dis- You’re at risk in any activity for:
position of master sound recordings, motion picture
films, video tapes, or tangible or intangible assets as- 1. The money and adjusted basis of property you con-
sociated with literary, artistic, musical, or similar prop- tribute to the activity, and
erties. 2. Amounts you borrow for use in the activity if:
Separation of Activities a. You’re personally liable for repayment, or
b. You pledge property (other than property used in
Generally, you treat your activity involving each film or the activity) as security for the loan.
video tape, item of leased section 1245 property, farm, oil
and gas property, or geothermal property as a separate Amounts borrowed. You’re at risk for amounts borrowed
activity. In addition, each investment that isn’t a part of a to use in the activity if you’re personally liable for repay-
trade or business is treated as a separate activity. ment. You’re also at risk if the amounts borrowed are se-
cured by property other than property used in the activity.
Leasing by a partnership or S corporation. For a part- In this case, the amount considered at risk is the net fair
nership or S corporation, treat all leasing of section 1245 market value of your interest in the pledged property. The
property that’s placed in service in any tax year of the part- net fair market value of property is its fair market value
nership or S corporation as one activity. (determined on the date the property is pledged) less any
prior (or superior) claims to which it’s subject. However, no
Aggregation of Activities property will be taken into account as security if it’s directly
or indirectly financed by debt that’s secured by property
Activities described in (6) under Activities Covered by the you contributed to the activity.
At-Risk Rules, earlier, that constitute a trade or business If you borrow money to finance a contribution to
are treated as one activity if: ! an activity, you can’t increase your amount at risk
• You actively participate in the management of the CAUTION by the contribution and the amount borrowed to fi-
trade or business, or nance the contribution. You may increase your at-risk
amount only once.
• The trade or business is carried on by a partnership or
S corporation and 65% or more of its losses for the tax
Certain borrowed amounts excluded. Even if you’re
year is allocable to persons who actively participate in
personally liable for the repayment of a borrowed amount
the management of the trade or business.
or you secure a borrowed amount with property other than
Similar rules apply to activities described in (1) through (5) property used in the activity, you aren’t considered at risk if
of that earlier discussion. you borrowed the money from a person having an interest
in the activity or from someone related to a person (other
Active participation. Active participation depends on all than you) having an interest in the activity. This doesn’t ap-
the facts and circumstances. Factors that indicate active ply to:
participation include making decisions involving the oper-
ation or management of the activity, performing services • Amounts borrowed by a corporation from a person
for the activity, and hiring and discharging employees. whose only interest in the activity is as a shareholder
Factors that indicate a lack of active participation include of the corporation,
lack of control in managing and operating the activity, hav- • Amounts borrowed from a person having an interest in
ing authority only to discharge the manager of the activity, the activity as a creditor, or
and having a manager of the activity who is an independ-
ent contractor rather than an employee. • Amounts borrowed after May 3, 2004, secured by real
property used in the activity of holding real property
Partners and S corporation shareholders. Partners or (other than mineral property) that, if nonrecourse,
shareholders may aggregate activities of their partnership would be qualified nonrecourse financing.
or S corporation within each of the following categories.
• Films and video tapes,

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Related persons.       Related persons include:                family of an individual includes only brothers and sis-
                                                               ters, half brothers and half sisters, a spouse, ances-
•  Members of a family, but only an individual's brothers 
                                                               tors, and lineal descendants.
   and sisters, half brothers and half sisters, spouse, an-
   cestors (parents, grandparents, etc.), and lineal de-     3. Any stock in a corporation owned by an individual 
   scendants (children, grandchildren, etc.);                  (other than by applying rule (2)) is considered owned 
•  Two corporations that are members of the same con-          directly or indirectly by or for the individual's partner.
   trolled group of corporations determined by applying a    4. When applying rule (1), (2), or (3), stock considered 
   10% ownership test;                                         owned by a person under rule (1) is treated as ac-
•  The fiduciaries of two different trusts, or the fiduciary   tually owned by that person. But, if a person construc-
   and beneficiary of two different trusts, if the same per-   tively owns stock because of rule (2) or (3), they don’t 
   son is the grantor of both trusts;                          own the stock for purposes of applying either rule (2) 
                                                               or (3) to make another person the constructive owner 
•  A tax-exempt educational or charitable organization         of the same stock.
   and a person who directly or indirectly controls it (or a 
   member of whose family controls it);                      Effect of government price support programs.                A gov-
•  A corporation and an individual who owns directly or      ernment  target  price  program  or  other  government  price 
   indirectly more than 10% of the value of the outstand-    support  programs  for  a  product  that  you  grow  doesn’t, 
   ing stock of the corporation;                             without agreements limiting your costs, reduce the amount 
                                                             you have at risk.
•  A trust fiduciary and a corporation of which more than 
   10% in value of the outstanding stock is owned di-        Effect  of  increasing  amounts  at  risk  in  subsequent 
   rectly or indirectly by or for the trust or by or for the years. Any  loss  that’s  allowable  in  a  particular  year  re-
   grantor of the trust;                                     duces  your  at-risk  investment  (but  not  below  zero)  as  of 
                                                             the  beginning  of  the  next  tax  year  and  in  all  succeeding 
•  The grantor and fiduciary, or the fiduciary and benefi-
                                                             tax  years  for  that  activity.  If  you  have  a  loss  that’s  more 
   ciary, of any trust;
                                                             than your at-risk amount, the loss disallowed won’t be al-
•  A corporation and a partnership if the same persons       lowed  in  later  years  unless  you  increase  your  at-risk 
   own more than 10% in value of the outstanding stock       amount.  Losses  that  are  suspended  because  they’re 
   of the corporation and more than 10% of the capital in-   greater than your investment that’s at risk are treated as a 
   terest or the profits interest in the partnership;        deduction  for  the  activity  in  the  following  year.  Conse-
•  Two S corporations if the same persons own more           quently, if your amount at risk increases in later years, you 
   than 10% in value of the outstanding stock of each        may  deduct  previously  suspended  losses  to  the  extent 
   corporation;                                              that the increases in your amount at risk exceed your los-
                                                             ses in later years. However, your deduction of suspended 
•  An S corporation and a regular corporation if the same    losses may be limited by the passive loss rules.
   persons own more than 10% in value of the outstand-
   ing stock of each corporation;
                                                             Amounts Not at Risk
•  A partnership and a person who owns directly or indi-
   rectly more than 10% of the capital or profits of the     You  aren’t  considered  at  risk  for  amounts  protected 
   partnership;                                              against  loss  through  nonrecourse  financing,  guarantees, 
                                                             stop loss agreements, or other similar arrangements.
•  Two partnerships if the same persons directly or indi-
   rectly own more than 10% of the capital or profits of     Nonrecourse  financing.  Nonrecourse  financing  is  fi-
   each;                                                     nancing for which you aren’t personally liable. If you bor-
•  Two persons who are engaged in business under             row  money  to  contribute  to  an  activity  and  the  lender's 
   common control (within the meaning of section 52(a)       only recourse is to your interest in the activity or the prop-
   and (b)); and                                             erty used in the activity, the loan is a nonrecourse loan.
                                                             You aren’t considered at risk for your share of any non-
•  An executor of an estate and a beneficiary of that es-
                                                             recourse  loan  used  to  finance  an  activity  or  to  acquire 
   tate.
                                                             property used in the activity unless the loan is secured by 
To determine the direct or indirect ownership of the out-    property not used in the activity.
standing stock of a corporation, apply the following rules.  However, you’re considered at risk for qualified nonre-
                                                             course financing secured by real property used in an ac-
1. Stock owned directly or indirectly by or for a corpora-
                                                             tivity  of  holding  real  property.  Qualified  nonrecourse  fi-
   tion, partnership, estate, or trust is considered owned 
                                                             nancing is financing for which no one is personally liable 
   proportionately by or for its shareholders, partners, or 
                                                             for repayment and that’s:
   beneficiaries.
                                                             • Borrowed by you in connection with the activity of 
2. Stock owned directly or indirectly by or for an individu-
                                                               holding real property,
   al's family is considered owned by the individual. The 
                                                             • Secured by real property used in the activity,

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• Not convertible from a debt obligation to an ownership have at risk the amount of any premium that you paid from
interest, and your personal assets for the insurance. However, if you
obtain casualty insurance or insurance protecting yourself
• Loaned from or guaranteed by any federal, state, or lo-
against tort liability, it doesn’t affect the amount you’re oth-
cal government, or borrowed by you from a qualified
erwise considered to have at risk.
person.

Other types of property used as security. The rules Reductions of
in the next two paragraphs apply to any financing incurred
after August 3, 1998. You can also choose to apply these Amounts at Risk
rules to financing you obtained before August 4, 1998. If
you do that, you must reduce the amounts at risk as a re- The amount you have at risk in any activity is reduced by
sult of applying these rules to years ending before August any losses allowed in previous years under the at-risk
4, 1998, to the extent they increase the losses allowed for rules. It may also be reduced because of distributions you
those years. received from the activity, debts changed from recourse to
In determining whether qualified nonrecourse financing nonrecourse, or the initiation of a stop loss or similar
is secured only by real property used in the activity of agreement. If the amount at risk is reduced below zero,
holding real property, disregard property that’s incidental your previously allowed losses are subject to recapture, as
to the activity of holding real property. Also, disregard explained next.
other property if the total gross fair market value of that
property is less than 10% of the total gross fair market Recapture Rule
value of all the property securing the financing.
For this purpose, treat yourself as owning directly your If the amount you have at risk in any activity at the end of
proportional share of the assets in any partnership in any tax year is less than zero, you must recapture at least
which you own, directly or indirectly, an equity interest. part of your previously allowed losses. You do this by add-
ing to your income from the activity for that year the lesser
Qualified person. A qualified person is a person who
of the following amounts.
actively and regularly engages in the business of lending
money. The most common example is a bank. • The negative at-risk amount (treated as a positive
However, none of the following persons can be a quali- amount); or
fied person. The total amount of losses deducted in previous tax
•
• A person related to you in one of the ways listed under years beginning after 1978, minus any amounts you
Related persons, earlier. However, a person related to previously added to your income from that activity un-
you may be a qualified person if the nonrecourse fi- der this recapture rule.
nancing is commercially reasonable and on the same
terms as loans involving unrelated persons. Don’t use the recapture income to reduce any net loss
from the activity for the tax year. Instead, treat the recap-
• A person from which you acquired the property or a tured amount as a deduction for the activity in the next tax
person related to that person. year.
• A person who receives a fee due to your investment in
the real property or a person related to that person. Pre-1979 activity. If the amount you had at risk in an ac-
tivity at the end of your tax year that began in 1978 was
Other loss limiting arrangements. Any capital you less than zero, you apply the preceding rule for the recap-
have contributed to an activity isn’t at risk if you’re protec- ture of losses by substituting that negative amount for
ted against economic loss by an agreement or arrange- zero. For example, if your at-risk amount for that tax year
ment for compensation or reimbursement. For example, was minus $50, you will recapture losses only when your
you aren’t at risk if you will be reimbursed for part or all of at-risk amount goes below minus $50.
any loss because of a binding agreement between your-
self and another person.
How To Get Tax Help
Example 1. Some commercial feedlots reimburse in-
vestors against any loss sustained on sales of the fed live-
If you have questions about a tax issue; need help prepar-
stock above a stated dollar amount per head. Under such
ing your tax return; or want to download free publications,
stop loss orders, the investor is at risk only for the portion
forms, or instructions, go to IRS.gov to find resources that
of the investor's capital for which the investor isn’t entitled
can help you right away.
to a reimbursement.
Preparing and filing your tax return. After receiving all
Example 2. You’re personally liable for a mortgage,
your wage and earnings statements (Forms W-2, W-2G,
but you separately obtain insurance to compensate you
1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
for any payments you must actually make because of your
compensation statements (by mail or in a digital format) or
personal liability. You’re considered at risk only to the ex-
other government payment statements (Form 1099-G);
tent of the uninsured portion of the personal liability to
and interest, dividend, and retirement statements from
which you’re exposed. You can include in the amount you
banks and investment firms (Forms 1099), you have

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several options to choose from to prepare and file your tax                  Getting  answers  to  your  tax  questions.     On 
return. You can prepare the tax return yourself, see if you                  IRS.gov,  you  can  get  up-to-date  information  on 
qualify for free tax preparation, or hire a tax professional to              current events and changes in tax law.
prepare your return.
                                                                     • IRS.gov/Help: A variety of tools to help you get an-
Free options for tax preparation.  Your options for pre-               swers to some of the most common tax questions.
paring  and  filing  your  return  online  or  in  your  local  com- • IRS.gov/ITA: The Interactive Tax Assistant, a tool that 
munity, if you qualify, include the following.                         will ask you questions and, based on your input, pro-
•  Free File. This program lets you prepare and file your              vide answers on a number of tax topics.
   federal individual income tax return for free using soft-         • IRS.gov/Forms: Find forms, instructions, and publica-
   ware or Free File Fillable Forms. However, state tax                tions. You will find details on the most recent tax 
   preparation may not be available through Free File. Go              changes and interactive links to help you find answers 
   to IRS.gov/FreeFile to see if you qualify for free online           to your questions.
   federal tax preparation, e-filing, and direct deposit or 
   payment options.                                                  • You may also be able to access tax information in your 
                                                                       e-filing software.
•  VITA. The Volunteer Income Tax Assistance (VITA) 
   program offers free tax help to people with 
   low-to-moderate incomes, persons with disabilities,               Need someone to prepare your tax return?            There are 
   and limited-English-speaking taxpayers who need                   various  types  of  tax  return  preparers,  including  enrolled 
   help preparing their own tax returns. Go to IRS.gov/              agents, certified public accountants (CPAs), accountants, 
   VITA, download the free IRS2Go app, or call                       and many others who don’t have professional credentials. 
   800-906-9887 for information on free tax return prepa-            If  you  choose  to  have  someone  prepare  your  tax  return, 
   ration.                                                           choose that preparer wisely. A paid tax preparer is:
•  TCE. The Tax Counseling for the Elderly (TCE) pro-                • Primarily responsible for the overall substantive accu-
   gram offers free tax help for all taxpayers, particularly           racy of your return,
   those who are 60 years of age and older. TCE volun-               • Required to sign the return, and
   teers specialize in answering questions about pen-
   sions and retirement-related issues unique to seniors.            • Required to include their preparer tax identification 
                                                                       number (PTIN).
   Go to IRS.gov/TCE or download the free IRS2Go app 
   for information on free tax return preparation.                           Although the tax preparer always signs the return, 
                                                                             you're  ultimately  responsible  for  providing  all  the 
•  MilTax. Members of the U.S. Armed Forces and quali-               CAUTION!
                                                                             information required for the preparer to accurately 
   fied veterans may use MilTax, a free tax service of-
                                                                     prepare your return and for the accuracy of every item re-
   fered by the Department of Defense through Military 
                                                                     ported on the return. Anyone paid to prepare tax returns 
   OneSource. For more information, go to 
                                                                     for  others  should  have  a  thorough  understanding  of  tax 
   MilitaryOneSource MilitaryOneSource.mil/MilTax (  ).
                                                                     matters. For more information on how to choose a tax pre-
      Also, the IRS offers Free Fillable Forms, which can 
                                                                     parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
   be completed online and then e-filed regardless of in-
   come.
                                                                     Employers can register to use Business Services On-
Using online tools to help prepare your return.    Go to 
                                                                     line. The Social Security Administration (SSA) offers on-
IRS.gov/Tools for the following.
                                                                     line service at SSA.gov/employer for fast, free, and secure 
•  The Earned Income Tax Credit Assistant IRS.gov/ (                 W-2 filing options to CPAs, accountants, enrolled agents, 
   EITCAssistant) determines if you’re eligible for the              and  individuals  who  process  Form  W-2,  Wage  and  Tax 
   earned income credit (EIC).                                       Statement,  and  Form  W-2c,  Corrected  Wage  and  Tax 
•  The Online EIN Application IRS.gov/EIN (    ) helps you           Statement.

   get an employer identification number (EIN) at no                 IRS social media.  Go to IRS.gov/SocialMedia to see the 
   cost.                                                             various social media tools the IRS uses to share the latest 
•  The Tax Withholding Estimator IRS.gov/W4App (   )                 information on tax changes, scam alerts, initiatives, prod-
   makes it easier for you to estimate the federal income            ucts, and services. At the IRS, privacy and security are our 
   tax you want your employer to withhold from your pay-             highest priority. We use these tools to share public infor-
   check. This is tax withholding. See how your withhold-            mation  with  you. Don’t  post  your  social  security  number 
   ing affects your refund, take-home pay, or tax due.               (SSN)  or  other  confidential  information  on  social  media 
                                                                     sites. Always protect your identity when using any social 
•  The First-Time Homebuyer Credit Account Look-up 
                                                                     networking site.
   (IRS.gov/HomeBuyer) tool provides information on 
                                                                     The following IRS YouTube channels provide short, in-
   your repayments and account balance.
                                                                     formative videos on various tax-related topics in English, 
•  The Sales Tax Deduction Calculator IRS.gov/ (                     Spanish, and ASL.
   SalesTax) figures the amount you can claim if you 
   itemize deductions on Schedule A (Form 1040).                     • Youtube.com/irsvideos.

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• Youtube.com/irsvideosmultilingua. Access your online account (individual taxpayers
only). Go to IRS.gov/Account to securely access infor-
• Youtube.com/irsvideosASL.
mation about your federal tax account.
Watching IRS videos. The IRS Video portal • View the amount you owe and a breakdown by tax
(IRSVideos.gov) contains video and audio presentations year.
for individuals, small businesses, and tax professionals.
• See payment plan details or apply for a new payment
Online tax information in other languages. You can plan.
find information on IRS.gov/MyLanguage if English isn’t • Make a payment or view 5 years of payment history
your native language. and any pending or scheduled payments.
Free Over-the-Phone Interpreter (OPI) Service. The • Access your tax records, including key data from your
IRS is committed to serving taxpayers with limited-English most recent tax return, and transcripts.
proficiency (LEP) by offering OPI services. The OPI Serv- View digital copies of select notices from the IRS.
•
ice is a federally funded program and is available at Tax-
payer Assistance Centers (TACs), most IRS offices, and • Approve or reject authorization requests from tax pro-
every VITA/TCE tax return site. The OPI Service is acces- fessionals.
sible in more than 350 languages. • View your address on file or manage your communica-
tion preferences.
Accessibility Helpline available for taxpayers with
disabilities. Taxpayers who need information about ac- Get a transcript of your return. With an online account,
cessibility services can call 833-690-0598. The Accessi- you can access a variety of information to help you during
bility Helpline can answer questions related to current and the filing season. You can get a transcript, review your
future accessibility products and services available in al- most recently filed tax return, and get your adjusted gross
ternative media formats (for example, braille, large print, income. Create or access your online account at IRS.gov/
audio, etc.). The Accessibility Helpline does not have ac- Account.
cess to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp. Tax Pro Account. This tool lets your tax professional
submit an authorization request to access your individual
Note. Form 9000, Alternative Media Preference, or taxpayer IRS online account. For more information, go to
Form 9000(SP) allows you to elect to receive certain types IRS.gov/TaxProAccount.
of written correspondence in the following formats.
• Standard Print. Using direct deposit. The safest and easiest way to re-
ceive a tax refund is to e-file and choose direct deposit,
• Large Print. which securely and electronically transfers your refund di-
• Braille. rectly into your financial account. Direct deposit also
avoids the possibility that your check could be lost, stolen,
• Audio (MP3). destroyed, or returned undeliverable to the IRS. Eight in
• Plain Text File (TXT). 10 taxpayers use direct deposit to receive their refunds. If
you don’t have a bank account, go to IRS.gov/
• Braille Ready File (BRF).
DirectDeposit for more information on where to find a bank
Disasters. Go to IRS.gov/DisasterRelief to review the or credit union that can open an account online.
available disaster tax relief.
Reporting and resolving your tax-related identity
Getting tax forms and publications. Go to IRS.gov/ theft issues.
Forms to view, download, or print all the forms, instruc- • Tax-related identity theft happens when someone
tions, and publications you may need. Or, you can go to steals your personal information to commit tax fraud.
IRS.gov/OrderForms to place an order. Your taxes can be affected if your SSN is used to file a
fraudulent return or to claim a refund or credit.
Getting tax publications and instructions in eBook
format. Download and view most tax publications and in- • The IRS doesn’t initiate contact with taxpayers by
structions (including the Instructions for Form 1040) on email, text messages (including shortened links), tele-
mobile devices as eBooks at IRS.gov/eBooks. phone calls, or social media channels to request or
IRS eBooks have been tested using Apple's iBooks for verify personal or financial information. This includes
iPad. Our eBooks haven’t been tested on other dedicated requests for personal identification numbers (PINs),
eBook readers, and eBook functionality may not operate passwords, or similar information for credit cards,
as intended. banks, or other financial accounts.
• Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
nals, and businesses. If your SSN has been lost or
stolen or you suspect you’re a victim of tax-related

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identity theft, you can learn what steps you should • Use the Offer in Compromise Pre-Qualifier to see if
take. you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in
• Get an Identity Protection PIN (IP PIN). IP PINs are
Compromise program, go to IRS.gov/OIC.
six-digit numbers assigned to taxpayers to help pre-
vent the misuse of their SSNs on fraudulent federal in- Filing an amended return. Go to IRS.gov/Form1040X
come tax returns. When you have an IP PIN, it pre- for information and updates.
vents someone else from filing a tax return with your
SSN. To learn more, go to IRS.gov/IPPIN. Checking the status of your amended return. Go to
IRS.gov/WMAR to track the status of Form 1040-X amen-
Ways to check on the status of your refund. ded returns.
• Go to IRS.gov/Refunds. It can take up to 3 weeks from the date you filed
• Download the official IRS2Go app to your mobile de- ! your amended return for it to show up in our sys-
vice to check your refund status. CAUTION tem, and processing it can take up to 16 weeks.

• Call the automated refund hotline at 800-829-1954.
Understanding an IRS notice or letter you’ve re-
The IRS can’t issue refunds before mid-February ceived. Go to IRS.gov/Notices to find additional informa-
! for returns that claimed the EIC or the additional tion about responding to an IRS notice or letter.
CAUTION child tax credit (ACTC). This applies to the entire
refund, not just the portion associated with these credits. Responding to an IRS notice or letter. You can now
upload responses to all notices and letters using the
Making a tax payment. Payments of U.S. tax must be Document Upload Tool. For notices that require additional
remitted to the IRS in U.S. dollars. Digital assets are not action, taxpayers will be redirected appropriately on
accepted. Go to IRS.gov/Payments for information on how IRS.gov to take further action. To learn more about the
to make a payment using any of the following options. tool, go to IRS.gov/Upload.

• IRS Direct Pay: Pay your individual tax bill or estimated Note. You can use Schedule LEP (Form 1040), Re-
tax payment directly from your checking or savings ac- quest for Change in Language Preference, to state a pref-
count at no cost to you. erence to receive notices, letters, or other written commu-
• Debit Card, Credit Card, or Digital Wallet: Choose an nications from the IRS in an alternative language. You may
approved payment processor to pay online or by not immediately receive written communications in the re-
phone. quested language. The IRS’s commitment to LEP taxpay-
ers is part of a multi-year timeline that began providing
• Electronic Funds Withdrawal: Schedule a payment translations in 2023. You will continue to receive communi-
when filing your federal taxes using tax return prepara- cations, including notices and letters, in English until they
tion software or through a tax professional. are translated to your preferred language.
• Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required. Contacting your local TAC. Keep in mind, many ques-
tions can be answered on IRS.gov without visiting a TAC.
• Check or Money Order: Mail your payment to the ad- Go to IRS.gov/LetUsHelp for the topics people ask about
dress listed on the notice or instructions. most. If you still need help, TACs provide tax help when a
• Cash: You may be able to pay your taxes with cash at tax issue can’t be handled online or by phone. All TACs
a participating retail store. now provide service by appointment, so you’ll know in ad-
vance that you can get the service you need without long
• Same-Day Wire: You may be able to do same-day wait times. Before you visit, go to IRS.gov/TACLocator to
wire from your financial institution. Contact your finan- find the nearest TAC and to check hours, available serv-
cial institution for availability, cost, and time frames. ices, and appointment options. Or, on the IRS2Go app,
under the Stay Connected tab, choose the Contact Us op-
Note. The IRS uses the latest encryption technology to
tion and click on “Local Offices.”
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and The Taxpayer Advocate Service (TAS)
faster than mailing in a check or money order. Is Here To Help You
What if I can’t pay now? Go to IRS.gov/Payments for What Is TAS?
more information about your options.
TAS is an independent organization within the IRS that
• Apply for an online payment agreement IRS.gov/ ( helps taxpayers and protects taxpayer rights. TAS strives
OPA) to meet your tax obligation in monthly install- to ensure that every taxpayer is treated fairly and that you
ments if you can’t pay your taxes in full today. Once know and understand your rights under the Taxpayer Bill
you complete the online process, you will receive im- of Rights.
mediate notification of whether your agreement has
been approved.

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How Can You Learn About Your Taxpayer                                    •   Download Pub. 1546, The Taxpayer Advocate Service 
Rights?                                                                      Is Your Voice at the IRS, available at IRS.gov/pub/irs-
                                                                             pdf/p1546.pdf;
The Taxpayer Bill of Rights describes 10 basic rights that                   Call the IRS toll free at 800-TAX-FORM 
                                                                         •
all  taxpayers  have  when  dealing  with  the  IRS.  Go  to                 (800-829-3676) to order a copy of Pub. 1546;
TaxpayerAdvocate.IRS.gov  to  help  you  understand  what 
these rights mean to you and how they apply. These are                   •   Check your local directory; or
your rights. Know them. Use them.                                        •   Call TAS toll free at 877-777-4778.

What Can TAS Do for You?                                                 How Else Does TAS Help Taxpayers?

TAS can help you resolve problems that you can’t resolve                 TAS  works  to  resolve  large-scale  problems  that  affect 
with  the  IRS.  And  their  service  is  free.  If  you  qualify  for   many taxpayers. If you know of one of these broad issues, 
their  assistance,  you  will  be  assigned  to  one  advocate           report it to TAS at IRS.gov/SAMS. Be sure to not include 
who will work with you throughout the process and will do                any personal taxpayer information.
everything  possible  to  resolve  your  issue.  TAS  can  help 
you if:
                                                                         Low Income Taxpayer Clinics (LITCs)
 • Your problem is causing financial difficulty for you, 
   your family, or your business;                                        LITCs are independent from the IRS and TAS. LITCs rep-
 • You face (or your business is facing) an immediate                    resent individuals whose income is below a certain level 
   threat of adverse action; or                                          and who need to resolve tax problems with the IRS. LITCs 
                                                                         can represent taxpayers in audits, appeals, and tax collec-
 • You’ve tried repeatedly to contact the IRS but no one                 tion  disputes  before  the  IRS  and  in  court.  In  addition, 
   has responded, or the IRS hasn’t responded by the                     LITCs can provide information about taxpayer rights and 
   date promised.                                                        responsibilities  in  different  languages  for  individuals  who 
                                                                         speak English as a second language. Services are offered 
How Can You Reach TAS?                                                   for free or a small fee. For more information or to find an 
                                                                         LITC near   you,     go    to      the    LITC  page at 
TAS  has  offices in  every  state,  the  District  of  Columbia, 
                                                                         TaxpayerAdvocate.IRS.gov/LITC  or  see  IRS  Pub.  4134, 
and Puerto Rico. To find your advocate’s number:
                                                                         Low  Income  Taxpayer  Clinic  List,  at IRS.gov/pub/irs-pdf/
 • Go to TaxpayerAdvocate.IRS.gov/Contact-Us;                            p4134.pdf.

                     To help us develop a more useful index, please let us know if you have ideas for index entries.
Index                See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                  At-risk rules:                                              Gift 18
A                                  Activities covered by                  20                  Installment sale    18
Active participation 21            Exceptions to         20                                   Partial 14
Activity:                          Excluded business                     21
 Appropriate economic unit    12   Qualified corporation                   20                E
 Nonpassive    7                   Qualifying business                   20                  Excluded business, definition of 21
 Trade or business   4             Recapture rule                      23
Amounts borrowed     21                                                                      F
Amounts not at risk    22 23,     B                                                          Farmer 8
Appropriate economic unit     12  Borrowed amounts                       21                  Form:
Assistance (See Tax help)                                                                     6198  19
At-risk activities:               C                                                           8810  3
 Aggregation of   21              Closely held corporation                    19             Former passive activity    4
 Separation of    21              Corporations:
At-risk amounts   21               Closely held          8 15,                               G
 Government price support          Controlled group of                   20                  Grouping passive activities 12
    programs   22                  Personal service                    8 15, 
 Increasing amounts    22          Qualified      20                                         I
 Nonrecourse financing  22                                                                   Income, passive activity   9
At-risk limits 19                 D
 Closely held corporation 19      Deductions, passive activity                    11         L
 Loss defined  19                 Disabled farmer                      8                     Limited entrepreneur   13
 Partners 19                      Disclosure requirement                     14              Limited partners     8
 S corporation shareholders   19  Dispositions:
 Who is affected    19             Death        18

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                                   Passive income, recharacterization     Phaseout rule 6
M                                  of 15                                  Real estate professional 8
Material participation   7 8,      Publications (See Tax help)           Retired farmer 8
Modified adjusted gross income   6 Publicly traded partnership     4 14, 
                                                                         S
N                                  Q                                     Section 1245 property  20
Nonrecourse loan   22              Qualified person, nonrecourse         Self-charged interest 9
                                   financing   23                        Separate activity 21
P                                  Qualifying business, at-risk          Significant participation passive 
                                   rules 20
Participation  8                                                          activities 15
                                                                         Special $25,000 allowance                       5
  Active 21                        R                                     Surviving spouse of farmer                      8
  Material 7
                                   Real estate professional 8
Passive activity 3 18, 
                                   Recapture rule under at-risk 
  Disposition  17                                                        T
                                   limits 23
  Former 4                                                               Tax help 23
                                   Recharacterization of passive         Trade or business activities:
  Grouping 12                      income 15
                                                                          Real property 9
  Limits 3                         Reductions of amounts at risk   23
  Material participation 7         Related persons 22                    W
  Rental 5                         Rental activity:
                                                                         Worksheet A 15 16, 
  Rules  4 12,                     $25,000 offset  5
                                                                         Worksheet B 16 17, 
  Who must use these rules    3    Active participation 6
Passive activity deductions   11   Exceptions  5
Passive activity income    9

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