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Department of the Treasury
Internal Revenue Service
2021

Instructions for Form 8582

Passive Activity Loss Limitations

Section references are to the Internal Revenue or business in which the taxpayer does • Trade or business activities in which
Code unless otherwise noted. not materially participate, with any other you did not materially participate for the
activity or activities of the taxpayer. See tax year.
Future Developments Regulations section 1.469-4(d)(6) for • Rental activities, regardless of your
For the latest developments related to more details. participation.
Form 8582 and its instructions, such as
legislation enacted after they were Definition of real property trade or PALs can’t be used to offset income
published, go to IRS.gov/Form8582. business. T.D. 9905 and 9943 from nonpassive activities. However, a
expanded Regulations section special allowance for rental real estate
1.469-9(b)(2) to define several terms activities may allow some losses even if
General Instructions used in determining whether a trade or the losses exceed passive income.
business is a real property trade or
What’s New business for purposes of section 469(c) PALs not allowed in the current year
(7)(C). T.D. 9905 added Regulations are carried forward until they’re allowed
Excess business loss limitation. If either against passive activity income;
sections 1.469-9(b)(2)(ii)(H) and (I)
you are a noncorporate taxpayer and against the special allowance, if
defining real property operations and
have allowable business losses after applicable; or when you sell or
real property management,
taking into account first the at-risk exchange your entire interest in the
respectively. T.D. 9943 added
limitations and then the passive loss activity in a fully taxable transaction to
Regulations sections 1.469-9(b)(2)(ii)
limitations (this form), your losses may an unrelated party.
(A) and (B) defining real property
be subject to the excess business loss
development and real property
limitation. After taking into account all For more information, see Pub. 925,
redevelopment, respectively.
the other loss limitations, complete Passive Activity and At-Risk Rules.
Form 461, Limitation on Business Note. Corporations subject to the
Losses, to figure the amount of your Reminders
passive activity rules must use Form
excess business loss. See Form 461 Reporting prior year unallowed los- 8810, Corporate Passive Activity Loss
and its instructions for details on the ses. Beginning in 2011, Form 8582 and Credit Limitations.
excess business loss limitation. must generally be filed by taxpayers
Commercial revitalization deduction who have an overall gain (including any
Who Must File
(CRD). The 120-month deduction prior year unallowed losses) from
period for CRDs for rental real estate business or rental passive activities. Form 8582 is filed by individuals,
placed in service by December 31, See Exception under Who Must File, estates, and trusts who have passive
2009, has now expired. References to later. activity deductions (including prior year
unallowed losses). However, you don’t
CRD have been removed from Form Regrouping due to Net Investment have to file Form 8582 if you meet the
8582 and these instructions. Income Tax. You may be able to following exception.
Changes in rules on grouping and regroup your activities if you’re subject
definition of real property trade or to the Net Investment Income Tax. See Exception
business. T.D. 9943 revised certain Regrouping Due to Net Investment You actively participated in rental real
rules in the regulations under section Income Tax under Grouping of estate activities (see Special Allowance
469. Activities, later, for more information. for Rental Real Estate Activities, later),
and you meet all of the following
Applicable date. The new rules Purpose of Form conditions.
apply to tax years beginning on or after Form 8582 is used by noncorporate • Rental real estate activities with
March 22, 2021, but taxpayers may taxpayers to figure the amount of any active participation were your only
choose to adopt these rules earlier. See passive activity loss (PAL) for the passive activities.
Regulations section 1.469-11(a)(1) and current tax year and to report the • You have no prior year unallowed
(4) for additional information on application of prior year unallowed losses from these (or any other passive)
applicability dates and early adoption. If PALs. activities.
you are a calendar year taxpayer, the • Your total loss from the rental real
new provisions apply to you in calendar A PAL occurs when total losses estate activities wasn’t more than
year 2022. (including prior year unallowed losses) $25,000 ($12,500 if married filing
from all your passive activities exceed separately).
Grouping rules. Treasury Decision the total income from all your passive • If you’re married filing separately, you
(T.D.) 9943 added Regulations section activities. lived apart from your spouse all year.
1.469-4(d)(6), which prohibits grouping
of trading activities described in Generally, passive activities include • You have no current or prior year
Temporary Regulations section the following. unallowed credits from a passive
activity.
1.469-1T(e)(6) subject to section 163(d)
(5)(A)(ii) involving a non-passive trade

Jan 13, 2022 Cat. No. 64294A

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• Your modified adjusted gross income losses from the disposition of assets or redevelopment, construction,
(see the instructions for line 6, later) was an interest in the activity. reconstruction, acquisition, conversion,
not more than $100,000 (not more than rental, operation, management, leasing,
Net loss. This is the excess of current
$50,000 if married filing separately). or brokerage trade or business.
year deductions over current year
• You don’t hold any interest in a rental Real property includes land,
income from the activity. This includes
real estate activity as a limited partner or buildings, and other inherently
any current year gains or losses from
as a beneficiary of an estate or a trust. permanent structures permanently
the disposition of assets or an interest in
If all the above conditions are met, the activity. affixed to land. Any interest in real
property, including fee ownership,
your rental real estate losses are not Overall gain. This is the excess of the co-ownership, leasehold, option, or
limited, and you don’t need to complete “net income” from the activity over the similar interest is real property. Tenant
Form 8582. Enter losses reported on prior year unallowed losses from the improvements to land, buildings, or
Schedule E (Form 1040), Supplemental activity. other structures that are inherently
Income and Loss, Part I, line 21, on
Schedule E (Form 1040), Part l, line 22. Overall loss. This is (a) the excess of permanent or otherwise classified as
For losses from a partnership or an S the prior year unallowed losses from the real property are real property for this
corporation, enter the amount of the activity over the “net income” from the purpose. See Regulations section
allowable loss from Schedule K-1 on activity, or (b) the prior year unallowed 1.469-9(b)(2) for more definitions and
Schedule E (Form 1040), Part II, column losses from the activity plus the “net information about determining whether
(g). Enter losses reported on line 32 of loss” from the activity. a trade or business is a real property
trade or business.
Form 4835, Farm Rental Income and Prior year unallowed losses. These
Expenses, on Form 4835, line 34c. are the losses from an activity that were For examples of the determination of
disallowed under the PAL limitations in whether a trade or business is a real
Coordination With Other a prior year and carried forward to the property trade or business, see
Limitations tax year under section 469(b). See Regulations section 1.469-9(b)(2)(iii).
Generally, PALs are subject to other Regulations section 1.469-1(f)(4) and Services you performed as an
limitations (for example, basis and Pub. 925. employee aren’t treated as performed in
a real property trade or business unless
at-risk limitations) before they’re subject
to the passive loss limitations. Once a Activities That Are Not you owned more than 5% of the stock
(or more than 5% of the capital or profits
loss becomes allowable under these Passive Activities
interest) in the employer.
other limitations, you must determine The following aren’t passive activities.
whether the loss is limited under the 1. Trade or business activities in Note. If a rental real estate activity isn’t
passive loss rules. See Form 6198, which you materially participated for the a passive activity for the current year,
At-Risk Limitations, for details on the tax year. any prior year unallowed loss is treated
at-risk rules. Also, capital losses that are as a loss from a former passive activity.
allowable under the passive loss rules 2. Any rental real estate activity in
may be limited under the capital loss which you materially participated if you See Former Passive Activities, later.
limitations of section 1211. Percentage were a “real estate professional” for the 3. A working interest in an oil or gas
depletion deductions that are allowable tax year. You were a real estate well. Your working interest must be held
under the passive loss rules may be professional only if: directly or through an entity that doesn’t
limited under section 613A(d). a. More than half of the personal limit your liability (such as a general
services you performed in trades or partner interest in a partnership). In this
If you have allowable business businesses during the tax year were case, it doesn’t matter whether you
losses after taking into account the loss performed in real property trades or materially participated in the activity for
limitations discussed above and businesses in which you materially the tax year.
computing the allowable passive losses participated, and If, however, your liability was limited
on this form, your losses may be subject b. You performed more than 750 for part of the year (for example, you
to the excess business loss limitation. hours of services during the tax year in converted your general partner interest
Complete Form 461 to figure the real property trades or businesses in to a limited partner interest during the
amount of your excess business loss. which you materially participated. year), some of your income and losses
Any disallowed loss resulting from this from the working interest may be treated
limitation will be treated as a net For purposes of whether you as passive activity gross income and
operating loss (NOL) that must be materially participated under item (2), passive activity deductions. See
carried forward and deducted in a each interest in rental real estate is a Temporary Regulations section
subsequent year. See Form 461 and its separate activity, unless you elect to 1.469-1T(e)(4)(ii).
instructions for details on the excess treat all interests in rental real estate as 4. The rental of a dwelling unit you
business loss limitation. one activity. For details on making this used as a residence if section 280A(c)
election, see the Instructions for (5) applies. This section applies if you
Definitions Schedule E (Form 1040). rented out a dwelling unit that you also
Except as otherwise indicated, the If you’re married filing jointly, one used as a home during the year for a
following terms in these instructions are spouse must separately meet both number of days that exceeds the
defined as shown below. (2)(a) and (2)(b) without taking into greater of 14 days or 10% of the number
Net income. This is the excess of account services performed by the other of days during the year that the home
current year income over current year spouse. was rented at a fair rental.
deductions from the activity. This A real property trade or business is 5. An activity of trading personal
includes any current year gains or any real property development, property for the account of owners of

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interests in the activity. For purposes of Exceptions b. The rental property was mainly
this rule, personal property means An activity is not a rental activity if any of used in the trade or business activity
property that’s actively traded, such as the following apply. during the tax year or during at least 2 of
stocks, bonds, and other securities. See the 5 preceding tax years, and
Temporary Regulations section 1. The average period of customer
1.469-1T(e)(6) for more details. use is: c. The gross rental income from the
property is less than 2% of the smaller
a. 7 days or less, or
Generally, income and losses from of the unadjusted basis or the FMV of
these activities aren’t entered on Form b. 30 days or less and significant the property.
8582. However, losses from these personal services were provided in
activities may be subject to limitations making the rental property available for Lodging provided for the employer's
other than the passive loss rules. customer use. convenience to an employee or the
employee's spouse or dependents is
Figure the average period of incidental to the activity or activities in
Trade or Business customer use for a class of property by which the employee performs services.
Activities dividing the total number of days in all 4. You customarily make the rental
A trade or business activity is an activity rental periods by the number of rentals property available during defined
(other than a rental activity or an activity during the tax year. If the activity business hours for nonexclusive use by
treated as incidental to an activity of involves renting more than one class of various customers.
holding property for investment) that: property, multiply the average period of
customer use of each class by the ratio 5. You provide property for use in a
1. Involves the conduct of a trade or of the gross rental income from that nonrental activity of a partnership,
business (within the meaning of section class to the activity's total gross rental S corporation, or a joint venture in your
162), income. The activity's average period of capacity as an owner of an interest in
2. Is conducted in anticipation of customer use equals the sum of these the partnership, S corporation, or joint
starting a trade or business, or class-by-class average periods venture.
3. Involves research or experimental weighted by gross income. See Example. If a partner contributes the
expenditures deductible under section Regulations section 1.469-1(e)(3)(iii). use of property to a partnership, none of
174 (or that would be if you chose to Significant personal services include the partner's distributive share of
deduct rather than capitalize them). only services performed by individuals. partnership income is income from a
Trade or business activities are To determine if personal services are rental activity unless the partnership is
generally reported on Schedule C (Form significant, all relevant facts and engaged in a rental activity.
1040), Profit or Loss From Business circumstances are taken into Also, a partner's gross income from a
(Sole Proprietorship); Schedule F (Form consideration, including the frequency guaranteed payment under section
1040), Profit or Loss From Farming; or of the services, the type and amount of 707(c) isn’t income from a rental activity.
in Part II or III of Schedule E (Form labor required to perform the services, The determination of whether the
1040). For trade or business activities and the value of the services relative to property used in the activity is provided
that are significant participation passive the amount charged for use of the in the partner's capacity as an owner of
activities (defined in item 4 under Tests property. an interest in the partnership is made on
for individuals, later), see Pub. 925 for 2. Extraordinary personal services the basis of all the facts and
how to report their income or losses. were provided in making the rental circumstances.
property available for customer use.
Rental Activities This applies only if the services are Reporting Income and Losses
A rental activity is a passive activity performed by individuals and the From the Activities
even if you materially participated in the customers' use of the property is If an activity meets any of the five
activity (unless it’s a rental real estate incidental to their receipt of the services. exceptions listed above, it’s not a rental
activity in which you materially 3. Rental of the property is activity. You must then determine:
participated and you were a real estate incidental to a nonrental activity. 1. Whether your rental of the
professional). The rental of property is incidental to property is a trade or business activity
an activity of holding property for (see Trade or Business Activities,
An activity is a rental activity if investment if the main purpose of earlier), and, if so,
tangible property (real or personal) is holding the property is to realize a gain 2. Whether you materially
used by customers or held for use by from its appreciation and the gross participated in the activity for the tax
customers and the gross income (or rental income is less than 2% of the year (see Material Participation, later).
expected gross income) from the smaller of the unadjusted basis or the
activity represents amounts paid (or to fair market value (FMV) of the property. If the activity is a trade or business
be paid) mainly for the use of the activity in which you didn’t materially
property. It doesn’t matter whether the Unadjusted basis is the cost of the participate, enter the income and losses
use is under a lease, a service contract, property without regard to depreciation from the activity on Part V.
or some other arrangement. deductions or any other basis
adjustment described in section 1016. If the activity is a trade or business
However, if you meet any of the five The rental of property is incidental to activity in which you did materially
exceptions below, the rental of the a trade or business activity if: participate, report any income or loss
from the activity on the forms or
property isn’t treated as a rental activity. a. You own an interest in the trade schedules normally used.
See Reporting Income and Losses or business activity during the tax year,
From the Activities, later, if you meet If the rental activity didn’t meet any of
any of the exceptions. the five exceptions, it’s generally a

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passive activity. However, special rules interest) in the activity was less than doesn’t matter. However, work isn’t
apply if you conduct the rental activity 10% (by value) of all interests in the participation if:
through a publicly traded partnership activity. • It isn’t work that an owner would
(PTP) or if any of the rules described customarily do in the same type of
under Recharacterization of Passive Active participation is a less stringent activity, and
Income, later, apply. Also see the PTP requirement than material participation • One of your main reasons for doing
rules, later. (see Material Participation, later). You the work was to avoid the disallowance
may be treated as actively participating of losses or credits from the activity
If none of the special rules apply, if, for example, you participated in under the passive activity rules.
enter the income and losses from the making management decisions or
passive rental activity on Parts IV or V. arranged for others to provide services Proof of participation. You may prove
See the instructions for Parts IV and V (such as repairs) in a significant and your participation in an activity by any
for details. bona fide sense. Management reasonable means. You don’t have to
decisions that may count as active maintain contemporaneous daily time
Special Allowance for participation include: reports, logs, or similar documents if
Rental Real Estate • Approving new tenants, you can establish your participation by
• Deciding on rental terms, other reasonable means. For this
Activities • Approving capital or repair purpose, reasonable means include, but
Active participation. If you actively expenditures, and are not limited to, identifying services
participated in a passive rental real • Other similar decisions. performed over a period of time and the
estate activity, you may be able to approximate number of hours spent
The maximum special allowance is:
deduct up to $25,000 of loss from the performing the services during that
activity from your nonpassive income. • $25,000 for single individuals and period, based on appointment books,
married individuals filing a joint return for
This special allowance is an exception calendars, or narrative summaries.
the tax year.
to the general rule disallowing losses in Tests for individuals. You materially
excess of income from passive • $12,500 for married individuals who
file separate returns for the tax year and participated for the tax year in an activity
activities. if you satisfy at least one of the following
lived apart from their spouses at all
The special allowance isn’t available times during the tax year. tests.
if you were married, are filing a separate $25,000 for a qualifying estate 1. You participated in the activity for
•
return for the year, and lived with your reduced by the special allowance for more than 500 hours.
spouse at any time during the year. which the surviving spouse qualified. 2. Your participation in the activity
Only an individual, a qualifying Modified adjusted gross income lim- for the tax year was substantially all of
estate, or a qualified revocable trust that itation. If your modified adjusted gross the participation in the activity of all
made an election to treat the trust as income (see the instructions for line 6, individuals (including individuals who
part of the decedent's estate may later) is $100,000 or less ($50,000 or didn’t own any interest in the activity) for
actively participate in a rental real estate less if married filing separately), your the year.
activity. Unless future regulations loss is deductible up to the amount of 3. You participated in the activity for
provide an exception, limited partners the maximum special allowance more than 100 hours during the tax
are not treated as actively participating referred to in the preceding paragraph. year, and you participated at least as
in a partnership's rental real estate much as any other individual (including
activity. If your modified adjusted gross individuals who didn’t own any interest
income is more than $100,000 ($50,000
A qualifying estate is the estate of a in the activity) for the year.
if married filing separately) but less than
decedent for tax years ending less than 4. The activity is a significant
$150,000 ($75,000 if married filing
2 years after the date of the decedent's participation activity for the tax year, and
separately), your special allowance is
death if the decedent would’ve satisfied you participated in all significant
limited to 50% of the difference between
the active participation requirements for participation activities during the year for
$150,000 ($75,000 if married filing
the rental real estate activity for the tax more than 500 hours.
separately) and your modified adjusted
year the decedent died.
gross income. A significant participation activity is
A qualified revocable trust may elect any trade or business activity in which
to be treated as part of a decedent's Generally, if your modified adjusted you participated for more than 100
estate for purposes of the special gross income is $150,000 or more hours during the year and in which you
allowance for active participation in ($75,000 or more if married filing didn’t materially participate under any of
rental real estate activities. The election separately), there is no special the material participation tests (other
must be made by both the executor (if allowance. than this fourth test).
any) of the decedent's estate and the If you qualify under the active 5. You materially participated in the
trustee of the revocable trust. For participation rules, use Part IV. See the activity (other than by meeting this fifth
details, see Regulations section instructions for Part VI, later. test) for any 5 (whether or not
1.645-1. To make this election, see the consecutive) of the 10 immediately
instructions on Form 8855, Election To Material Participation preceding tax years.
Treat a Qualified Revocable Trust as
For the material participation tests listed
Part of an Estate. 6. The activity is a personal service
below, participation generally includes activity in which you materially
You aren’t considered to actively any work done in connection with an participated for any 3 (whether or not
participate in a rental real estate activity activity if you owned an interest in the consecutive) preceding tax years.
if at any time during the tax year your activity at the time you did the work. The
interest (including your spouse's capacity in which you did the work

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An activity is a personal service However, for purposes of the • A Baltimore activity and a
activity if it involves the performance of material participation tests, you aren’t Philadelphia activity.
personal services in the fields of health, treated as a limited partner if you also • Four separate activities.
law, engineering, architecture, were a general partner in the Once you choose a grouping under
accounting, actuarial science, partnership at all times during the these rules, you must continue using
performing arts, consulting, or in any partnership's tax year ending with or that grouping in later tax years unless
other trade or business in which capital within your tax year (or, if shorter, during it’s determined that the original grouping
isn’t a material income-producing factor. the portion of the partnership's tax year was clearly inappropriate or a material
7. Based on all the facts and in which you directly or indirectly owned change in the facts and circumstances
circumstances, you participated in the your limited partner interest). makes it clearly inappropriate.
activity on a regular, continuous, and Special rules for certain retired or The IRS may regroup your activities if
substantial basis during the tax year. disabled farmers and surviving your grouping fails to reflect one or more
You didn’t materially participate in the spouses of farmers. Certain retired or appropriate economic units and one of
activity under this seventh test, disabled farmers and surviving spouses the primary purposes of your grouping is
however, if you participated in the of farmers are treated as materially to avoid the passive activity limitations.
activity for 100 hours or less during the participating in a farming activity if the
tax year. real property used in the activity would Limitation on grouping certain activi-
Your participation in managing the meet the estate tax rules for special ties. The following activities may not be
activity doesn’t count in determining valuation of farm property passed from grouped together.
whether you materially participated a qualifying decedent. See Temporary 1. A rental activity with a trade or
under this test if: Regulations section 1.469-5T(h)(2). business activity unless the activities
being grouped together make up an
a. Any person (except you) received Estates and trusts. The PAL appropriate economic unit and:
compensation for performing services in limitations apply in figuring the
the management of the activity, or distributable net income and taxable a. The rental activity is insubstantial
income of an estate or trust. The rules relative to the trade or business activity
b. Any individual spent more hours or vice versa, or
for determining material participation for
during the tax year performing services
this purpose haven’t yet been issued. b. Each owner of the trade or
in the management of the activity than
business activity has the same
you did (regardless of whether the
individual was compensated for the Grouping of Activities proportionate ownership interest in the
management services). Generally, one or more trade or rental activity. If so, the portion of the
business activities or rental activities rental activity involving the rental of
Test for a spouse. Participation by may be treated as a single activity if the property used in the trade or business
your spouse during the tax year in an activities make up an appropriate activity may be grouped with the trade
activity you own may be counted as economic unit for the measurement of or business activity.
your participation in the activity even if gain or loss under the passive activity 2. An activity involving the rental of
your spouse didn’t own an interest in the rules. real property with an activity involving
activity and whether or not you and your the rental of personal property (except
spouse file a joint return for the tax year. Whether activities make up an personal property provided in
appropriate economic unit depends on connection with the real property or vice
Tests for investors. Work done as an all the relevant facts and circumstances. versa).
investor in an activity isn’t treated as The factors given the greatest weight in
participation unless you were directly determining whether activities make up 3. Any activity with another activity
involved in the day-to-day management an appropriate economic unit are: in a different type of business and in
which you hold an interest as a limited
or operations of the activity. For 1. Similarities and differences in partner if that other activity engages in
purposes of this test, work done as an types of trades or businesses, holding, producing, or distributing
investor includes the following.
2. The extent of common control, motion picture films or videotapes;
1. Studying and reviewing financial farming; leasing section 1245 property;
statements or reports on operations of 3. The extent of common
the activity. ownership, or exploring for or exploiting oil and gas
resources or geothermal deposits.
2. Preparing or compiling 4. Geographical location, and
4. Any trading activities in which you
summaries or analyses of the finances 5. Interdependencies between or don't materially participate. A trading
or operations of the activity for your own among the activities. activity is an activity of trading in
use. personal property. For this purpose,
Example. You have a significant
3. Monitoring the finances or ownership interest in a bakery and a personal property is any personal
operations of the activity in a movie theater in Baltimore and in a property that is actively traded, for
nonmanagerial capacity. bakery and a movie theater in example, financial securities. A taxpayer
Philadelphia. Depending on all the who does not materially participate in a
Special rules for limited partners. If relevant facts and circumstances, there trading activity is prohibited from
you were a limited partner in an activity, may be more than one reasonable grouping the activity with any other
you generally didn’t materially method for grouping your activities. For activity, including any other trading
participate in the activity. You did instance, the following groupings may or activity. The prohibition on grouping is
materially participate in the activity, may not be permissible. effective for taxable years beginning on
however, if you met material A single activity. or after March 22, 2021. If you are a
•
participation test 1, 5, or 6 under Tests A movie theater activity and a bakery calendar year taxpayer, the new
•
for individuals, earlier, for the tax year. activity.

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provisions apply to you in calendar year    taxable year for which you’re amending       Addition to an existing grouping. 
2022.                                       the return;                                  You must file a written statement with 
                                            3. The limitation period for                 your original income tax return for the 
Activities conducted through part-          assessments under section 6501 hasn’t        tax year in which you add a new activity 
nerships, S corporations, and C cor-        ended;                                       to an existing group. The statement 
porations subject to section 469.                                                        must provide the name, address, and 
Once a partnership or corporation           4. The changes on your amended 
determines its activities under these       return cause the amount on Form 8960,        EIN, if applicable, for the activity that’s 
rules, a partner or shareholder may use     line 12, of your amended return to be        being added and for the activities in the 
these rules to group those activities       greater than zero; and                       existing group. In addition, the 
                                                                                         statement must contain a declaration 
with:                                       5. The changes on your amended               that the activities make up an 
• Each other,                               return cause the amount on Form 8960,        appropriate economic unit for the 
• Activities conducted directly by the      line 13, of your amended return to be        measurement of gain or loss under the 
partner or shareholder, or                  greater than the amount entered on           passive activity rules.
• Activities conducted through other        Form 8960, line 14.
partnerships and corporations.                                                           Regrouping.   You must file a written 
                                            This rule applies equally to changes         statement with your original income tax 
  A partner or shareholder may not          to modified adjusted gross income or         return for the tax year in which you 
treat as separate activities those          net investment income upon an IRS            regroup the activities. The statement 
activities grouped together by the          examination.                                 must provide the names, addresses, 
partnership or corporation.
                                            Manner of regrouping.  If you regroup        and EINs, if applicable, for the activities 
Regrouping Due to Net                       your activities under this rule, you must    that are being regrouped. If two or more 
Investment Income Tax                       attach to your original or amended           activities are being regrouped into a 
You may be able to regroup your             return, as applicable, a statement that      single activity, the statement must 
activities, as described below, if you’re   satisfies the requirements described in      contain a declaration that the regrouped 
subject to the Net Investment Income        Regrouping under Disclosure                  activities make up an appropriate 
Tax (NIIT) for the first time. For detailed Requirement next.                            economic unit for the measurement of 
                                                                                         gain or loss under the passive activity 
information, see Regulations section        Disclosure Requirement                       rules. In addition, the statement must 
1.469-11(b)(3)(iv).
                                            For tax years beginning after January        contain an explanation of the material 
Regrouping on an original return.           24, 2010, the following disclosure           change in the facts and circumstances 
Under the NIIT fresh start election, you    requirements for groupings apply.            that made the original grouping clearly 
may regroup for the first tax year you’re   You’re required to report certain            inappropriate.
subject to the NIIT (without regard to the  changes to your groupings that occur 
effect of regrouping). You may regroup      during the tax year to the IRS. If you fail  Passive Activity Income 
only once under this election and that      to report these changes, each trade or 
                                                                                         and Deductions
regrouping will apply to the tax year for   business activity or rental activity will be 
which you regroup and all future tax        treated as a separate activity. You’ll be    Take into account only passive activity 
years. You’re eligible to regroup if:       considered to have made a timely             income and passive activity deductions 
  1. You weren’t previously subject to      disclosure if you filed all affected         to figure your net income or net loss 
the NIIT;                                   income tax returns consistent with the       from all passive activities or any passive 
                                            claimed grouping and make the                activity.
  2. The amount you would have 
                                            required disclosure on the income tax 
entered on Form 8960, line 12, without                                                   If your passive activity is reported on 
                                            return for the year in which you first 
the regrouping, would have been                                                          Schedule C, E, or F, and the activity has 
                                            discovered the failure to disclose. If the 
greater than zero; and                                                                   no prior year unallowed losses or any 
                                            IRS discovered the failure to disclose,      gain or loss from the disposition of 
  3. The amount you would have              you must have reasonable cause for not       assets or an interest in the activity, take 
entered on Form 8960, line 13, without      making the required disclosure. For          into account only the passive activity 
the regrouping, would have been             more information on disclosure               income and passive activity deductions 
greater than the amount you would have      requirements, see Revenue Procedure          from the activity to figure the amount to 
entered on Form 8960, line 14, without      2010-13, available at IRS.gov/irb/           enter on Form 8582, including all 
the regrouping.                             2010-04_IRB#RP-2010-13 .                     applicable Parts IV through IX.
Regrouping on an amended return.            New grouping. You must file a written        If you own an interest in a passive 
You may regroup your activities on an       statement with your original income tax      activity through a partnership or an
amended tax return, but only if you         return for the first tax year in which two   S corporation, the partnership or
weren’t subject to the NIIT on your         or more activities are originally grouped    S corporation will generally provide you 
original return (or previously amended      into a single activity. The statement        with the net income or net loss from the 
return). You’re eligible if:                must provide the names, addresses,           passive activity. If, however, the 
  1. You weren’t previously subject to      and employer identification numbers          partnership or S corporation must state 
the NIIT for the tax year for which you’re  (EINs), if applicable, for the activities    an item of gross income or deduction 
filing an amended return or any prior tax   being grouped as a single activity. In       separately to you, and the gross income 
year;                                       addition, the statement must contain a       or deduction is passive activity gross 
                                            declaration that the grouped activities      income or a passive activity deduction 
  2. The changes on the amended             make up an appropriate economic unit         (respectively), include that amount in 
return cause you to be subject to the       for the measurement of gain or loss          the net income or net loss entered on 
NIIT for the first time beginning in the    under the passive activity rules.

                                                             -6-                         Instructions for Form 8582 (2021)

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Form 8582, including all applicable beginning after 1986 as a nonpassive • Rental of property to a nonpassive
Parts IV through IX. loss under the rule excluding working activity.
interests in oil and gas wells from
The partnership or S • Acquisition of an interest in a
passive activities (see item 3 under pass-through entity that licenses
! corporation doesn’t have a Activities That Are Not Passive intangible property.
CAUTION record of your prior year
Activities, earlier). See Regulations
unallowed losses from the passive Passive Activity Deductions
section 1.469-2(c)(6).
activities of the partnership or S To figure your overall gain or overall loss
corporation. If you had prior year • Any income from intangible property
if your personal efforts significantly from all passive activities or any passive
unallowed losses from these activities, activity, take into account only passive
contributed to the creation of the
they can be found in column (c) of your activity deductions.
property.
2020 Worksheet 5.
• Any income treated as not from a Passive activity deductions include
passive activity under Temporary
Passive Activity Income all deductions from activities that are
Regulations section 1.469-2T(f) and passive activities for the current tax year
To figure your overall gain or loss from Regulations section 1.469-2(f). See and all deductions from passive
all passive activities or any passive Recharacterization of Passive Income, activities that were disallowed under the
activity, take into account only passive later. PAL rules in prior tax years and carried
activity income. Don’t enter income that • Overall gain from any interest in a forward to the current tax year. See
isn’t passive activity income on Form PTP (see item 2 under Passive activity Regulations section 1.469-1(f)(4).
8582. loss rules for partners in PTPs, later).
Passive activity income includes all • State, local, and foreign income tax Passive activity deductions include
income from passive activities (with refunds. any loss from a disposition of property
certain exceptions described in • Income from a covenant not to used in a passive activity at the time of
Temporary Regulations section compete. the disposition and any loss from a
1.469-2T(c)(2) and Regulations section • Any reimbursement of a casualty or disposition of less than your entire
1.469-2(c)(2)), including gain from the theft loss included in income as interest in a passive activity. See
disposition of an interest in a passive recovery of all or part of a prior year loss Dispositions, later, for the treatment of
activity and from the disposition of deduction if the deduction for the loss losses upon disposition of your entire
property used in a passive activity at the wasn’t treated as a passive activity interest in an activity.
time of the disposition. deduction.
Passive activity deductions don’t
• Cancellation of debt income to the
include the following.
Passive activity income doesn’t extent that at the time the debt was
include the following. discharged, the debt wasn’t properly • Deductions for expenses (other than
interest expense) that are clearly and
• Income from an activity that isn’t a allocable under Temporary Regulations
directly allocable to portfolio income.
passive activity. section 1.163-8T to passive activities.
• Portfolio income, including interest • Qualified home mortgage interest,
(other than self-charged interest treated Recharacterization of Passive capitalized interest expenses, and other
as passive activity income, discussed Income interest expenses (except self-charged
interest treated as a passive activity
later), dividends, annuities, and royalties Certain income from passive activities
deduction (discussed next) and interest
not derived in the ordinary course of a must be recharacterized and excluded
expenses properly allocable to passive
trade or business, and gain or loss from from passive activity income. The
activities).
the disposition of property that produces amount of income recharacterized
portfolio income or is held for equals the net income from the sources • Losses from dispositions of property
that produce portfolio income or
investment (see section 163(d)(5)). See given below. If during the tax year you
property held for investment.
Temporary Regulations section received net income from any of these
1.469-2T(c)(3). sources (either directly or through a • State, local, and foreign income
taxes.
• Alaska Permanent Fund dividends. partnership or an S corporation), see
• Personal service income, including Pub. 925 to find out how to report net • Charitable contribution deductions.
salaries, wages, commissions, income or loss from these sources. For • Net operating loss deductions,
percentage depletion carryovers under
self-employment income from trade or more information, see Temporary
section 613A(d), and capital loss
business activities in which you Regulations section 1.469-2T(f) and
carryovers.
materially participated for the tax year, Regulations section 1.469-2(f).
deferred compensation, taxable social • Deductions and losses that would’ve
security and other retirement benefits, Income from the following sources been allowed for tax years beginning
and payments from partnerships to may be subject to the net income before 1987, but for basis or at-risk
partners for personal services. See recharacterization rules. limitations.
Temporary Regulations section • Significant participation passive • Net negative section 481 adjustments
1.469-2T(c)(4). activities defined in item 4 under Tests allocated to activities other than passive
• Income from positive section 481 for individuals, earlier. activities. See Temporary Regulations
adjustments allocated to activities other • Rental of property if less than 30% of section 1.469-2T(d)(7).
than passive activities. See Temporary the unadjusted basis of the property is • Deductions for losses attributable to a
Regulations section 1.469-2T(c)(5). subject to depreciation. federally declared disaster.
• Income or gain from investments of • Passive equity-financed lending • The deduction allowed for the
working capital. activities. deductible part of self-employment
• Income from an oil or gas property if • Rental of property incidental to a taxes.
you treated any loss from a working development activity.
interest in the property for any tax year

Instructions for Form 8582 (2021) -7-

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Self-Charged Interest                       Dispositions                               An overall loss from an entire 
Certain self-charged interest income or                                                disposition of a passive activity is a 
                                            Disposition of an Entire Interest
deductions may be treated as passive                                                   nonpassive loss if you have an 
activity gross income or passive activity   If you disposed of your entire interest in aggregate loss from all other passive 
deductions if the loan proceeds are         a passive activity or a former passive     activities. When figuring your modified 
used in a passive activity. Generally,      activity to an unrelated person in a fully adjusted gross income for Part II, line 6 
self-charged interest income and            taxable transaction during the tax year,   of Form 8582, be sure to take into 
deductions result from loans between        your losses allocable to the activity for  account the overall loss from the 
you and a partnership or S corporation      the year aren’t limited by the PAL rules.  disposition of the activity.
in which you had a direct or indirect       A fully taxable transaction is a           Example 1. Activity with overall 
ownership interest. This includes both      disposition in which you recognize all     gain. You sell your entire interest in a 
loans you made to the partnership or        realized gain or loss.                     rental real estate activity in which you 
S corporation and loans the partnership                                                actively participated for a gain of 
or S corporation made to you. It also       If you’re using the installment method     $15,525. $7,300 of the gain is section 
includes loans from one partnership or      to report this kind of disposition, figure 1231 gain reported on Form 4797,
S corporation to another partnership or     the loss for the current year that isn’t   Part I, and $8,225 is ordinary recapture 
S corporation if each owner in the          limited by the PAL rules by multiplying    income reported on Form 4797, Part II. 
borrowing entity has the same               your overall loss (which doesn’t include   On line 22 of Schedule E (Form 1040), 
proportional ownership interest in the      losses allowed in prior years) by the      you report a total loss of $15,450, which 
lending entity.                             following fraction:                        includes a current year $2,800 net loss 
                                                                                       and a $12,650 prior year unallowed 
The self-charged interest rules don’t                                                  loss. You have an overall gain from the 
apply to your interest in a partnership or        Gain recognized in the current year
                                                                                       disposition ($15,525 – $15,450 = $75).
S corporation if the entity made an               Unrecognized gain as of the 
election under Regulations section                beginning of the current year        Because you had an overall gain, you 
1.469-7(g) to avoid the application of                                                 make the following entries on Part IV. 
these rules. For more details on the                                                   You enter the $15,525 gain on the 
                                                                                       disposition in column (a), the current 
self-charged interest rules, see            A partner in a PTP isn’t treated as        year loss of $2,800 in column (b), and 
Regulations section 1.469-7.                having disposed of an entire interest in   the prior year unallowed loss of $12,650 
                                            an activity of a PTP until there’s an      in column (c).
Former Passive Activities                   entire disposition of the partner's 
A former passive activity is any activity   interest in the PTP.                       Example 2. Activity with overall 
that was a passive activity in a prior tax                                             loss. You sell your entire interest in an 
year but is not a passive activity in the   Reporting an Entire Disposition            oil and gas limited partnership that was 
current tax year. A prior year unallowed    on Form 4797 or Form 8949                  your only passive activity for a gain of 
loss from a former passive activity is      If you completely dispose of your entire   $2,000. You have a current year 
allowed to the extent of current year       interest in a passive activity or a former Schedule E loss of $3,330 and a 
income from the activity.                   passive activity, you may have to report   Schedule E prior year unallowed loss of 
                                            net income or loss and prior year          $1,115.
If current year net income from the 
                                            unallowed losses from the activity. All 
activity is less than or equal to the prior                                            Because you have an overall loss of 
                                            the net income and losses are reported 
year unallowed loss, enter the prior year                                              $2,445 after combining the gain and 
                                            on the forms and schedules normally 
unallowed loss and any current year net                                                losses, none of the amounts are entered 
                                            used.
income from the activity on Form 8582,                                                 on Form 8582.
including all applicable Parts IV through   Combine all income and losses              You enter the net loss plus the prior 
IX.                                         (including any prior year unallowed        year unallowed loss ($3,330 + $1,115 = 
If current year net income from the         losses) from the activity for the tax year $4,445) on Schedule E, Part II, column 
activity is more than the prior year        to see if you have an overall gain or      (i), and the $2,000 gain on the sale on 
unallowed loss from the activity, enter     loss.                                      Form 8949, in either Part I or Part II, 
                                                                                       depending on how long you held the 
the prior year unallowed loss and the       If you have an overall gain, report the    partnership interest.
current year net income up to the           income, losses, and prior year 
amount of prior year unallowed loss on      unallowed losses on Part IV or V.          Disposition of Less Than an 
Form 8582, including all applicable                                                    Entire Interest
Parts IV through IX.                        If you have an overall gain and this is    Gains and losses from the disposition of 
                                            a former passive activity, report all      less than an entire interest in an activity 
If the activity has a net loss for the      income and losses (including any prior     are treated as part of the net income or 
current year, enter the prior year          year unallowed losses) on the forms        net loss from the activity for the current 
unallowed loss (but not the current year    and schedules normally used and don’t      year.
loss) on Form 8582, including all           use Form 8582.
applicable Parts IV through IX.                                                                 A disposition of less than 
                                            If you have an overall loss when you                substantially all of an entire 
To report a disposition of a former         combine the income and losses, don’t       CAUTION! interest doesn’t trigger the 
passive activity, follow the rules under    use Form 8582 for the activity. All losses allowance of prior year unallowed 
Dispositions next.                          (including prior year unallowed losses)    losses.
                                            are allowed in full. Report the income 
                                            and losses on the forms and schedules 
                                            normally used.

                                                                -8-                         Instructions for Form 8582 (2021)

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Disposition of Substantially All and a Form 4797 gain of $2,000. You Columns (d) and (e). Combine
of an Activity enter $7,000 in column (a). income and losses in columns (a)
You may treat the disposition of Column (b). Enter the current year net through (c) for each activity, and either
substantially all of an activity as a loss for each activity. Don’t enter any enter the overall gain for the activity in
separate activity if you can prove with prior year unallowed losses in this column (d) or enter the overall loss for
reasonable certainty: column. Enter the total of column (b) on the activity in column (e). Don’t enter
1. The prior year unallowed losses, Part I, line 1b of Form 8582. amounts from columns (d) and (e) on
Parts I, II, or III of Form 8582. These
if any, allocable to the part of the activity If an activity has net income on one
amounts will be used when the rest of
disposed of; and form or schedule and a net loss on
Form 8582 is completed to figure the
2. The net income or loss for the another form or schedule, report the net
loss allowed for the current year.
year of disposition allocable to the part amounts separately in columns (a) and
of the activity disposed of. (b) of Part IV.
Part II—Special Allowance
Example. A Schedule E rental
activity has current year income of for Rental Real Estate
Specific Instructions $1,000 on line 21 of Schedule E and a Activities With Active
current year Form 4797 loss of $4,500. Participation
Part I—2021 Passive You enter $1,000 in column (a) and
Activity Loss $4,500 in column (b). If your filing status is married
filing separately and you lived
Use Part I to combine the net income Column (c). Enter the prior year CAUTION! with your spouse at any time
and net loss from all passive activities to unallowed losses for each activity. You during the year, you are not eligible for
determine if you have a passive activity find these amounts on Worksheet 5, the special allowances in Part II. Do not
loss (PAL) for 2021. Use Parts IV and V column (c) of your 2020 Form 8582. complete Part II. Instead, go to Part III of
first to determine the entries for lines 1 Enter the total of column (c) from your Form 8582. See the instructions for Part
and 2 of Part I, as follows. 2021 Part IV on Part I, line 1c of Form III—Total Losses Allowed, later.
• Use Part IV for rental real estate 8582.
activities with active participation. Use Part II to figure the maximum
• Use Part V for all other passive Columns (d) and (e). Combine amount of rental loss allowed if you
activities. income and losses in columns (a) have an overall loss on Part I, line 1d
through (c) for each activity, and either from your rental real estate activities you
If you need additional lines for enter the overall gain for the activity in actively participated in during 2021.
TIP any of the Parts IV through IX, column (d) or enter the overall loss for
you can either attach copies of the activity in column (e). Don’t enter If you’re claiming both the
page 2 or 3, whichever is applicable, or amounts from columns (d) and (e) on ! premium tax credit (PTC) and
your own schedule that’s in the same Parts I, II, or III of Form 8582. These CAUTION self-employed health insurance
format as the applicable part(s). amounts will be used when the rest of deduction (SEHID) and Part I, lines 1d
Form 8582 is completed to figure the and 3 of Form 8582 are both losses, see
Part IV loss allowed for the current year. Self-Employed Health Insurance
Individuals and qualifying estates who Deduction and PTC in Pub. 974. You’ll
actively participated in rental real estate Part V have to complete worksheets in Pub.
activities must include the income or Use Part V to figure the amounts to 974 before you complete Part II of Form
loss from those activities in Part IV to enter on Part I, lines 2a through 2c for: 8582.
figure the amounts to enter on Part I, • Passive trade or business activities,
lines 1a through 1c of Form 8582. • Passive rental real estate activities Enter all numbers in Part II as
that don’t qualify for the special positive amounts (that is, greater than
Don’t enter a prior year unallowed allowance, and zero).
loss in column (c) of Part IV unless you • Rental activities other than rental real
actively participated in the activity in estate activities. Example. Part II, line 4 has a loss of
$42,000 (reported as a positive amount)
both the year the loss arose and the Column (a). Enter the current year net and line 8 is $25,000. You enter
current tax year. If you didn’t actively income for each activity. Enter the total $25,000 on line 9 (the smaller of line 4
participate in both years, enter the prior of column (a) on Part I, line 2a of Form or line 8, both treated as positive
year unallowed loss in column (c) of 8582. (See the example under Column amounts).
Part V. (a) for Part IV, earlier.)
Line 4. Enter on line 4 the smaller of
Married individuals who file Column (b). Enter the current year net the loss on Part I, line 1d or the loss on
! separate returns and lived with loss for each activity. Enter the total of line 3.
CAUTION their spouses at any time during
column (b) on Part I, line 2b of Form
Example. Part I, line 1d has a loss of
the tax year don’t qualify under the 8582. (See the example under Column
$3,000 and line 2d has a gain of $100.
active participation rule and must use (b) for Part IV, earlier.)
Part V instead of Part IV. The combined loss on line 3 is $2,900.
Column (c). Enter the unallowed You enter $2,900 as a positive number
Column (a). Enter the current year net losses for the prior years for each on Part II, line 4 (the smaller of the loss
income from each activity. Enter the activity. You find these amounts on on Part I, line 1d or the loss on
total of column (a) on Part I, line 1a of Worksheet 5, column (c) of your 2020 line 3).
Form 8582. Form 8582. Enter the total of column (c)
Line 5. Married persons filing separate
Example. A Schedule E rental from your 2021 Part V on Part I, line 2c
returns who lived apart from their
activity has current year profit of $5,000 of Form 8582.
spouses at all times during the year

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must enter $75,000 on line 5 instead of Line 11. Use Parts IV through IX of Column (b). Divide each of the
$150,000. Form 8582 and the related instructions individual losses shown in column (a) by
Line 6. To figure modified adjusted to figure the unallowed loss to be the total of all the losses in column (a),
gross income, combine all the amounts carried forward and the allowed loss to and enter this ratio for each activity in
used to figure adjusted gross income report on your forms and schedules for column (b). The total of all the ratios in
except don’t take into account: 2021. column (b) must equal 1.00.
• Passive income or loss included on Parts IV and V Column (c). Multiply each ratio in
Form 8582, column (b) by the amount on Part II,
• Any rental real estate loss allowed to Parts IV and V, columns (d) and (e),
real estate professionals (defined under show whether an activity had an overall line 9 of Form 8582, and enter the
Activities That Are Not Passive gain or loss. If you have activities that results in column (c). The total of
Activities, earlier), show overall gain in column (d) of Parts column (c) must be the same as Part II,
• Any overall loss from a PTP, IV or V, report all the income and losses line 9 of Form 8582.
• The taxable amount of social security listed in columns (a), (b), and (c) for Column (c) total is the same as
and tier 1 railroad retirement benefits, those activities on the proper forms and column (a) total. If the total losses in
• Deductible contributions to traditional schedules, including Form 8582. column (c) are the same as those in
individual retirement accounts (IRAs) If you have activities that show an column (a), the losses in Part IV are
and section 501(c)(18) pension plans, overall loss in column (e) of Parts IV or allowed in full and aren’t carried over to
• The deduction allowed for the V, you must allocate your allowed loss Part VII. Report all amounts in columns
deductible part of self-employment on Part III, line 11 of Form 8582 to those (a), (b), and (c) of Part IV on the proper
taxes, activities by completing Parts VI, VII, forms and schedules.
• The exclusion from income of interest and VIII, or IX. Column (c) total is less than
from series EE and I U.S. savings bonds column (a) total. If the total losses in
used to pay higher education expenses, Complete Part VI only if you entered
• The exclusion of amounts received an amount (other than zero) on Part II, column (c) are less than the total losses
under an employer's adoption line 9 of Form 8582. Otherwise, skip in column (a), complete column (d).
assistance program, Part VI and complete Part VII for all Column (d). Subtract column (c) from
• The student loan interest deduction, activities in Part IV or V that have overall column (a) and enter the results in
or losses in column (e). column (d). Also enter the amounts from
• The deduction allowed for Part VI column (d) of Part VI in column (a) of
foreign-derived intangible income and Part VII.
global intangible low-taxed income. Use Part VI to allocate the special
allowance on Part II, line 9 of Form 8582 Part VII—Allocation of
Include in modified adjusted gross among your rental real estate activities. Unallowed Losses
income any portfolio income and
expenses that are clearly and directly In the first column of Part VI, enter Complete Part VII if any activities have
allocable to portfolio income. Also the name of each activity. In the second an overall loss in column (e) of Part V or
include any income that’s treated as column, enter the form or schedule and losses in column (d) of Part VI (in
nonpassive income, such as overall line number on which the loss will be column (e) of Part IV if you didn’t have
gain from a PTP and net income from an reported. to complete Part VI).
activity or item of property subject to the Example. You receive a On Part VII, enter the name of each
recharacterization of passive income Schedule K-1 from partnership P that activity and the form or schedule and
rules. reports losses from two rental real line number on which the loss will be
When figuring modified adjusted estate activities, Activity X and Activity reported. See the Example for Part VI.
gross income, include any overall loss Y. The losses from partnership P are
Column (a). Enter the amounts, if any,
from the entire disposition of a passive reported on line 28A of Schedule E. In
from column (d) of Part VI (from column
activity (considered a nonpassive loss). the first two columns of Part VI, enter:
(e) of Part IV if you didn’t have to
Example. Your adjusted gross complete Part VI). Also enter the losses,
income on line 11 of Form 1040 or Form Name of Activity Form or Schedule if any, from column (e) of Part V.
1040-SR is $92,000 and you have Activity X Sch E, line 28A Column (b). Divide each of the
taxable social security benefits of
$5,500 on line 6b. Your modified Activity Y Sch E, line 28A individual losses shown in column (a) by
the total of all the losses in column (a)
adjusted gross income is $86,500
and enter this ratio for each activity in
($92,000 – $5,500). If the loss from an activity is reported in column (b). The total of all the ratios
Line 8. Don’t enter more than $12,500 more than one place, identify both must equal 1.00.
on line 8 if you’re married filing a locations in the second column (for
Column (c). Complete the following
separate return and you and your example, Sch E, line 28A/Form 4797,
computation.
spouse lived apart at all times during the line 2). If you need additional space,
year. show this information on an attached
statement.
Part III—Total Losses If you entered an amount on Part II,
Allowed line 9, list on Part VI all activities with an
Use Part III to figure the amount of the overall loss in column (e) of Part IV.
losses from all passive activities (as Column (a). Enter the overall loss from
determined in Part I) allowed for 2021. column (e) of Part IV for each activity.

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A. Enter as a positive amount column (c) of Part VII for the activity. long-term capital loss from a
Part I, line 3 of Form These are your unallowed losses for partnership).
8582 . . . . . . . . . . . . . 2021. Keep a record of these amounts
Line 1a, column (a). Enter the net loss
B. Enter Part II, line 9 of so the losses can be used to figure your
plus any prior year unallowed loss from
Form 8582 . . . . . . . . . PAL next year.
the activity that’s reported on the same
C. Subtract line from B Column (c). Subtract column (b) from form or, in the case of Form 4797 and
line A . . . . . . . . . . . . column (a). These amounts are the Form 8949, the same part.
losses allowed for 2021 under the If you have a Form 8949 28% rate
passive loss rules. Report the amounts loss and a Form 8949 non-28%-rate
Multiply each ratio in column (b) by in this column on the forms and loss, see Example of Form 8949
the amount on line C above, and enter schedules normally used, subject to any transactions, later, before completing
the result in column (c). further limitations described in Part IX.
Coordination With Other Limitations,
Parts VIII and IX earlier. Line 1b, column (a). Enter any net
income from the activity that’s reported
Parts VIII and IX figure your unallowed See the forms and schedules listed
on the same form or schedule (or on the
and allowed losses for each activity. under How To Report Allowed Losses,
same part of the same form or
If you have losses from any activity later.
schedule) as the loss on line 1a, column
that are reported on two or more (a).
different forms or schedules, use Part IX Part IX—Activities With Losses
Example. You enter a prior year
instead of Part VIII for that activity. Reported on Two or More Forms or unallowed loss from Form 4797, Part I
Also use Part IX instead of Part VIII Schedules on line 1a. If the activity has a current
for any activity with two or more year Form 4797, Part I gain, enter the
transactions that are reported on the Use Part IX for any activity listed in Part
same form or schedule but must be VII that has losses that are reported on gain on line 1b, column (a). If the activity
separately identified for tax purposes. two or more different forms and doesn’t have a Form 4797, Part I gain,
Transactions that must be separately schedules or are identified separately enter -0- on line 1b, column (a).
identified include capital losses that are on the same form or schedule (for Column (b). Subtract line 1b, column
28% rate losses and those that aren’t. example, 28% rate and non-28%-rate (a) from line 1a, column (a), and enter
capital losses reported on Form 8949). the result in column (b). If line 1b,
Note. 28% rate gain or loss includes all Part IX allocates the allowed and column (a), is more than line 1a, column
collectibles gains and deductible unallowed loss for the activity and (a), enter -0- in column (b).
long-term losses and section 1202 gain allocates the allowed loss to the
on the sale of qualified small business different forms or schedules (or where Column (c). Divide each of the losses
stock. See the Instructions for identified separately on the same form entered in column (b) by the total of
Schedule D for details. or schedule) used to report the losses. column (b) and enter the ratio in column
(c). The total of this column must be
Part VIII—Allowed Losses Only losses that would cause a 1.00.
difference in tax liability if they were Column (d). Multiply the unallowed
Use Part VIII for any activity listed in Part reported on a different form or schedule loss for this activity, found in Part VII,
VII if all the loss from that activity is or are identified separately on the same column (c) by each ratio in column (c) of
reported on one form or schedule and form or schedule are kept separate. Part IX. If -0- is entered in column (b) of
no transactions need to be identified Those forms, schedules, and parts are Part IX, also enter -0- for that form or
separately (as discussed in Part IX , the following. schedule in column (d).
later). Also see Identification of • Schedules C, E, and F. The amount in column (d) is the
Disallowed Passive Activity Deductions • Form 8949 (Parts I and II (28% rate unallowed loss for 2021. Keep a record
in Pub. 925 for more information. losses and non-28%-rate losses)). of Part IX so you can use the losses to
Example. You will report all the figure your PAL next year.
allowed loss from an activity listed in Note. You must generally make a
Part VII on Schedule E. Use Part VIII to separate entry in Form 8949, Part I or Column (e). Subtract the amount in
determine the allowed loss, even if part Part II for each transaction reported. column (d) from the loss entered on
of the loss is a current year Schedule E See the Instructions for Form 8949. line 1a, column (a). This amount is the
loss and part of it is a prior year • Forms 4684 (Section B), 4797 loss allowed for 2021 under the passive
unallowed Schedule E loss. (Parts I and II), and 4835. loss rules. Report the amounts in this
column on the forms or schedules
On Part VIII, enter the name of each Use a separate copy of Part IX for normally used, subject to any further
activity and the form or schedule and each activity for which you have losses limitations described in Coordination
line number on which the loss is reported on two or more different forms With Other Limitations, earlier. The
reported. See the Example for Part VI. or schedules or which are identified forms and schedules you use must
separately on the same form or show the losses from this column and
Column (a). For each activity entered the income, if any, for that activity from
schedule.
in Part VIII, enter the net loss plus the column (a) of Part IV or Part V.
prior year unallowed loss for the activity.
Figure this amount by adding the losses On Part IX, enter the form or Example of Form 8949
in columns (b) and (c) of Parts IV and V. schedule and line number on the dotted transactions. The taxpayer had the
line above each line 1a (for example, following Form 8949 transactions from
Column (b). For each activity entered Schedule D, line 12, to report a passive activities in 2021.
in Part VIII, enter the amount from

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Activity I Schedule D, line 18). Keep a record of Example. Schedule C shows net
A passive activity prior year the unallowed 28% rate and profit for the year of $5,000 from a
unallowed long-term capital loss (a 28% non-28%-rate losses to figure the PAL passive activity. The activity also has a
rate loss) of $1,000 and a current year for next year. Form 4797 gain of $2,500 and a prior
long-term capital loss (a non-28%-rate See the forms and schedules listed year unallowed Schedule C loss of
loss) of $3,000. under How To Report Allowed Losses $6,000. The loss allowed for 2021 is
Activity II next. $6,000. You enter a net loss of $1,000
on line 31 of Schedule C (the $5,000 net
A current year collectibles loss (a profit for the year less the $6,000 loss
28% rate loss) of $230 and net income How To Report
allowed for the year). To the left of the
of $1,100 from Schedule E (Form 1040). Allowed Losses entry space, you enter “PAL.”
Part V Line 3 is income. If Part I, line 3 of See Form 4797 and Form 8949,
Activity I has an overall loss of Form 8582 shows net income or zero, later, if you also had passive gains and
$4,000 (current year long-term capital all the losses in columns (b) and (c) of losses from the sale of assets or of an
loss of $3,000 and a prior year Parts IV and V are allowed in full under interest in a passive activity.
unallowed long-term capital loss of the passive loss rules. Report the
$1,000). Activity II has an overall gain of income and losses in columns (a), (b), Schedule E, Part I. Enter the allowed
$870 (current year net income of $1,100 and (c) of Parts IV and V on the forms loss from the part on line 22 of
less a current year long-term capital and schedules normally used. Schedule E. An activity that has net
profit for the year and prior year
loss of $230). Part III, line 11 of Form Line 11 is the same as the total of unallowed losses will have net profit on
8582 shows an allowed loss of $1,100. Part I, lines 1b, 1c, 2b, and 2c. In this line 21 and the allowed loss on line 22.
Since Activity II has an overall gain, case, all the losses in columns (b) and The allowed loss on line 22 will include
the amounts shown in columns (a) and (c) of Parts IV and V are allowed in full the loss allowed to the extent of the net
(b) of Part V for that activity are reported under the passive loss rules. Report the profit. Line 24 of Schedule E will show
on the proper forms and schedules and income and losses in columns (a), (b), total profit and line 25 will show total
aren’t shown on any other part. and (c) of Parts IV and V on the forms losses allowed (both passive and
Part VII and schedules normally used. nonpassive). Line 26 will show the total
Activity I has an unallowed loss of Columns (a) and (c) of Part VI are net profit or loss.
$3,130 (Part I, line 3 of Form 8582 the same amount. In this case, all the Schedule E, Parts II and III. Any item
($3,130) less the sum of Part II, line 9 of losses in columns (b) and (c) of Part IV of income shown on your Schedule K-1
Form 8582 (-0-) x 100%). are allowed in full under the passive loss that’s passive income must be entered
Part IX rules. Report the income and losses in as passive income in the appropriate
columns (a), (b), and (c) of Part IV on column of Schedule E, Part II or III.
Part IX is used to figure the portion of the forms and schedules normally used. Enter the passive loss allowed from Part
the unallowed loss attributable to the VIII or IX of Form 8582 in the
28% rate loss and the portion Losses allowed in column (c) of Part
attributable to the non-28%-rate loss. VIII. The amounts in column (c) of Part appropriate column for passive losses.
VIII are the losses or deductions allowed The passive losses allowed include the
The loss attributable to the 28% rate loss allowed to the extent of any net
for 2021 for the activities listed in that
loss ($1,000) and the loss attributable to income from the activity. Passive net
part. Report the loss allowed from
the non-28%-rate loss ($3,000) are income or loss reportable on
column (c) of Part VIII and the income, if
separate entries in Part IX. The ratio of Schedule E, Part II, includes any
any, for that activity from column (a) of
each loss to the total of the two losses is self-charged interest income and
Part IV or V, on the form or schedule
figured as follows. $1,000/$4,000 = 0.25 deductions treated as passive activity
normally used.
and $3,000/$4,000 = 0.75. Each of income and deductions. See
these ratios is multiplied by the Losses allowed in column (e) of Part Self-Charged Interest, earlier.
unallowed loss for Activity I, shown in IX. The amounts in column (e) of Part See Form 4797 and Form 8949,
column (c) of Part VII ($3,130). IX are the losses or deductions allowed later, if you also had passive gains or
Unallowed losses for Activity I are the for 2021 for the activity listed on that losses from the sale of assets or of an
following. part. Report the losses allowed from interest in a passive activity.
• 28% rate loss: 0.25 x $3,130 = column (e) of Part IX and the income, if
$782.50. any, for that activity from column (a) of Form 4684, Section B. Any passive
• Non-28%-rate loss: 0.75 x $3,130 = Part IV or V, on the forms or schedules activity gain from Form 4684 is
$2,347.50. normally used. unchanged. It was used on Form 8582
to determine allowable PALs. If you
Allowed losses for Activity I are the Schedules C and F, and Form 4835. don’t have passive losses on Form
following. Enter on the net profit or loss line of your 4684, complete Form 4684 and follow
• 28% rate loss: $1,000 − $782.50 = Schedule C or F, or line 34c of Form the instructions for that form for where to
$217.50. 4835, the allowed passive loss from the report the gain.
• Non-28%-rate loss: $3,000 − part. To the left of the entry space, enter
$2,347.50 = $652.50. “PAL.” If you have passive losses on Form
4684, cross through the amount you first
The total loss allowed for Activity I If the net profit or loss line on your entered on line 31, 32, 38a, 38b, or 39
($870) is entered in Part II of Form form or schedule shows net profit for the of that form, and enter the allowed loss
8949. The allowed 28% rate loss year, reduce the net profit by the from the part. To the left of the entry
($217.50) is entered on the 28% Rate allowed loss from Part VIII or IX, and space, enter “PAL.”
Gain Worksheet (see the instructions for enter the result on the net profit or loss
line.

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Form 4797 and Form 8949. If you substantial equivalent of a secondary 4797, you report the prior year
sold assets from a passive activity or market exists if prospective buyers and unallowed loss of $3,500. You enter
you sold an interest in your passive sellers have the opportunity to buy, sell, “From PTP” to the left of each entry
activity, all gains from the activity must or exchange interests in a timeframe space.
be entered on the appropriate line of and with the regularity and continuity 3. If you have an overall loss (but
Form 4797 or Form 8949. Identify the that the existence of a market maker didn’t dispose of your entire interest in
gain as “FPA.” Enter any allowed losses would provide. the PTP to an unrelated person in a fully
for Form 4797 or Form 8949 on the Special Instructions for PTPs taxable transaction during the year), the
appropriate line. On Form 8949, include losses are allowed only to the extent of
“PAL” in the description of the property Section 469(k) provides that the passive the income, and the excess loss is
in column (a). On Form 4797, enter activity limitations must be applied carried forward to use in a future year if
“PAL” to the left of the entry space (for separately to items from each PTP. you have income to offset it. Report as a
example, line 2 or line 10). PALs from a PTP may generally be passive loss on the schedule or form
used only to offset income or gain from you normally use the portion of the loss
Entire disposition with an overall passive activities of the same PTP. The equal to the income. Report the income
loss. If you made an entire disposition special allowance for rental real estate as passive income on the form or
of your interest in a passive activity and activities doesn’t apply to PALs from a schedule you normally use.
that activity had an overall loss, none of PTP.
the gains, if any, or losses were entered Example. You have a Schedule E
on Form 8582. However, all the gains Passive activity loss rules for part- loss of $12,000 (current year losses
and losses must be reported on the ners in PTPs. Don’t report passive plus prior year unallowed losses) and
forms or schedules normally used. To income, gains, or losses from a PTP on Form 4797 gain of $7,200 from the
the left of the entry space, enter Form 8582. Instead, use the following passive activities of a PTP. You report
“EDPA.” rules to figure and report your income, the $7,200 gain on the appropriate line
gains, and losses from passive activities of Form 4797. On Schedule E, Part II,
Entire disposition with an overall you held through each PTP you owned you report $7,200 of the losses as a
gain. Gains and losses from this during the tax year. passive loss in column (g). You carry
activity were included on Form 8582 so 1. Combine any current year forward the unallowed loss of $4,800
that the gains might offset other PALs. income, gains and losses, and any prior ($12,000 − $7,200).
Report all the gains and losses on the year unallowed losses to see if you have If you have unallowed losses from
forms and schedules normally used, an overall loss from the PTP. Include more than one activity of the PTP or
and to the left of the entry space, enter only the same types of income and from the same activity of the PTP that
“EDPA.” losses you would include to figure your must be reported on different forms or
net income or loss from a non-PTP schedules, allocate the unallowed
Publicly Traded passive activity. See Passive Activity losses on a pro rata basis to figure the
Partnerships (PTPs) Income and Deductions, earlier. amount allowed for each activity or on
A PTP is a partnership whose interests 2. If you have an overall gain, the each form or schedule.
are traded on an established securities net gain portion (total gain minus total
market or are readily tradable on a losses) is nonpassive income. To allocate and keep a record of
TIP the unallowed losses, use Parts
secondary market (or its substantial It’s important to figure the nonpassive VII, VIII, and IX of Form 8582.
equivalent). income because it must be included in
An established securities market modified adjusted gross income to List each activity of the PTP in Part
includes any national securities figure the special allowance for active VII. Enter the overall loss from each
exchange and any local exchange participation in a non-PTP rental real activity in column (a). Complete column
registered under the Securities estate activity on Form 8582. Also, you (b) of Part VII according to its
Exchange Act of 1934 or exempted may be able to include the nonpassive instructions. Multiply the total unallowed
from registration because of the limited income in investment income when loss from the PTP by each ratio in
volume of transactions. It also includes figuring your investment interest column (b) and enter the result in
any over-the-counter market. expense deduction. See Form 4952, column (c) of Part VII.
Investment Interest Expense Deduction.
Next, complete Part VIII for each
A secondary market generally exists Report all gains and allowed losses activity listed in Part VII if all the loss
if a person stands ready to make a from the activity on the forms or from that activity is reported on one form
market in the interest. An interest is schedules normally used, and to the left or schedule. Use Part IX instead of Part
treated as readily tradable if the interest of each entry space, enter “From PTP.” VIII for each activity with losses reported
is regularly quoted by persons, such as
brokers or dealers, who are making a Example. You have Schedule E on two or more different forms or
market in the interest. income of $8,000 and a Form 4797 prior schedules (or are identified separately
year unallowed loss of $3,500 from the on the same form or schedule). Enter
The substantial equivalent of a passive activities of a PTP. You have a the net loss plus any prior year
secondary market exists if there’s no $4,500 overall gain ($8,000 − $3,500) unallowed losses in column (a) of Part
identifiable market maker, but holders of that’s nonpassive income. On VIII (or line 1a, column (a) of Part IX, if
interests have a readily available, Schedule E, Part II, you report the applicable). The losses in column (c) of
regular, and ongoing opportunity to sell $4,500 net gain as nonpassive income Part VIII (column (e) of Part IX) are the
or exchange interests through a public in column (k). In column (h), you report allowed losses to report on your forms
means of obtaining or providing the remaining Schedule E gain of or schedules. Report these losses and
information on offers to buy, sell, or $3,500 ($8,000 − $4,500) as passive any income from the PTP on the forms
exchange interests. Similarly, the income. On the appropriate line of Form and schedules normally used.

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4. If you have an overall loss and you these laws and to allow us to figure and taxpayers who file this form is shown
disposed of your entire interest in the collect the right amount of tax. below.
PTP to an unrelated person in a fully You are not required to provide the
taxable transaction during the year, your information requested on a form that is Recordkeeping. . . . . . . 26 min.
losses (including prior year unallowed subject to the Paperwork Reduction Act Learning about the law
losses) allocable to the activity for the unless the form displays a valid OMB or the form. . . . . . . . . . 22 min.
year aren’t limited by the passive loss control number. Books or records
rules. A fully taxable transaction is one relating to a form or its instructions must Preparing the form. . . . 1 hr., 52
in which you recognize all your realized be retained as long as their contents min.
gain or loss. Report the income and may become material in the Copying, assembling,
losses on the forms and schedules administration of any Internal Revenue and sending the form
to the IRS
normally used. law. Generally, tax returns and return . . . . . . . . . . . 48 min.
For rules on the disposition of an information are confidential, as required
entire interest reported using the by section 6103.

installment method, see Disposition of The time needed to complete and file If you have comments concerning the
an Entire Interest, earlier. this form will vary depending on accuracy of these time estimates or
individual circumstances. The estimated suggestions for making this form
Paperwork Reduction Act Notice. burden for individual taxpayers filing this simpler, we would be happy to hear
We ask for the information on this form form is approved under OMB control from you. See the instructions for the tax
to carry out the Internal Revenue laws of number 1545-0074 and is included in return with which this form is filed.
the United States. You are required to the estimates shown in the instructions
give us the information. We need it to for their individual income tax return.
ensure that you are complying with The estimated burden for all other

-14- Instructions for Form 8582 (2021)

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