General Instructions

Purpose of Form

Form 8582-CR is used by noncorporate taxpayers to figure the amount of any passive activity credit (PAC) for the current tax year (including any prior year unallowed credits) and the amount of credit allowed for the current year. It also is used to make the election to increase the basis of credit property when a taxpayer disposes of his or her interest in an activity.

PACs that are not allowed in the current year are carried forward until they are allowed against the tax on either net passive income or the special allowance, if applicable.

Different rules apply to your activities and the related credit, depending on the type of activity. Generally, passive activities include:

• Trade or business activities in which you did not materially participate for the tax year.
• Rental activities, regardless of your participation.

See Trade or Business Activities on page 3 and Rental Activities on page 2.

For more information, see Pub. 925, Passive Activity and At-Risk Rules.

Note:   Corporations subject to the passive activity rules must use Form 8810, Corporate Passive Activity Loss and Credit Limitations.

Who Must File

Form 8582-CR is filed by individuals, estates, and trusts with any of the following credits from passive activities.

• Investment credit (including the rehabilitation credit, energy credit, and reforestation credit).
• Work opportunity credit.
• Welfare-to-work credit.
• Credit for alcohol used as fuel.
• Credit for increasing research activities.
• Low-income housing credit.
• Enhanced oil recovery credit.
• Disabled access credit.
• Renewable electricity production credit.
• Empowerment zone and renewal community employment credit.
• Indian employment credit.
• Credit for employer social security and Medicare taxes paid on certain employee tips.
• Orphan drug credit.
• Credit for small employer pension plan startup costs.
• Credit for employer-provided child care facilities and services.
• New York Liberty Zone business employee credit.
• Nonconventional source fuel credit.
• Qualified electric vehicle credit.
• General credits from electing large partnerships.

Overview of Form

The form contains six parts. The Specific Instructions, starting on page 9, include, at the beginning of the instructions for each part, a brief explanation of the purpose or use of that part. These explanations give a general overview of how the form works.

Also, as you read the instructions that follow, see Example of How To Complete Form 8582-CR, beginning on page 5. The example goes through a four-step analysis of how the form and worksheets are completed for a partner in a limited partnership that has a low-income housing credit. This example may provide enough information to complete the form and worksheets without reading all of the instructions.

Activities That Are Not Passive Activities

The following are not passive activities.

1. Trade or business activities in which you materially participated for the tax year.
2. Any rental real estate activity in which you materially participated if you were a real estate professional for the tax year. You were a real estate professional only if:
   1. More than half of the personal services you performed in trades or businesses were performed in real property trades or businesses in which you materially participated and
   2. You performed more than 750 hours of services in real property trades or businesses in which you materially participated.

   For purposes of this rule, each interest in rental real estate is a separate activity unless you elect to treat all interests in rental real estate as one activity.

   If you are married filing jointly, one spouse must separately meet both of the above conditions without taking into account services performed by the other spouse.

   A real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. Services you performed as an employee are not treated as performed in a real property trade or business unless you owned more than 5% of the stock (or more than 5% of the capital or profits interest) in the employer.

3. A working interest in an oil or gas well. Your working interest must be held directly or through an entity that does not limit your liability (such as a general partner interest in a partnership). In this case, it does not matter whether you materially participated in the activity for the tax year.

   If, however, your liability was limited for part of the year (for example, you converted your general partner interest to a limited partner interest during the year), some of your income and losses from the working interest may be treated as passive activity gross income and passive activity deductions. See Temporary Regulations section 1.469-1T(e)(4)(ii).

4. The rental of a dwelling unit you used as a residence if section 280A(c)(5) applies. This section applies if you rented out a dwelling unit that you also used as a home during the year for a number of days that exceeds the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental.
5. An activity of trading personal property for the account of owners of interests in the activity. For purposes of this rule, personal property means property that is actively traded, such as stocks, bonds, and other securities. See Temporary Regulations section 1.469-1T(e)(6).

Generally, credits from these activities are not entered on Form 8582-CR. However, credits from these activities may be subject to limitations other than the passive credit limitation rules.

Rental Activities

A rental activity is a passive activity even if you materially participated in the activity (unless it is a rental real estate activity in which you materially participated and you were a real estate professional).

However, if you meet any of the five exceptions listed below, the rental of the property is not treated as a rental activity. See Reporting Credits From the Activities on this page if you meet any of the exceptions.

An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. It does not matter whether the use is under a lease, a service contract, or some other arrangement.

Exceptions

An activity is not a rental activity if:

1. The average period of customer use is:
   1. 7 days or less or
   2. 30 days or less and significant personal services (see below) were provided in making the rental property available for customer use.

   Figure the average period of customer use for a class of property by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by the ratio of the gross rental income from that class to the activity's total gross rental income. The activity's average period of customer use equals the sum of these class-by-class average periods weighted by gross income. See Regulations section 1.469-1(e)(3)(iii).

   Significant personal services include only services performed by individuals. To determine if personal services are significant, all relevant facts and circumstances are considered. Facts and circumstances include the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property.

2. Extraordinary personal services were provided in making the rental property available for customer use.

   Extraordinary personal services are services provided in making rental property available for customer use only if they are performed by individuals and the customers' use of the rental property is incidental to their receipt of the services.

3. Rental of the property is incidental to a nonrental activity.

   The rental of property is incidental to an activity of holding property for investment if the main purpose of holding the property is to realize a gain from its appreciation and the gross rental income is less than 2% of the smaller of the unadjusted basis or the fair market value (FMV) of the property.

   Unadjusted basis is the cost of the property without regard to depreciation deductions or any other basis adjustment described in section 1016.

   The rental of property is incidental to a trade or business activity if:

   1. You owned an interest in the trade or business activity during the tax year,
   2. The rental property was mainly used in the trade or business activity during the tax year or during at least 2 of the 5 preceding tax years, and
   3. The gross rental income from the property is less than 2% of the smaller of the unadjusted basis or the FMV of the property.

      Lodging provided for the employer's convenience to an employee or the employee's spouse or dependents is incidental to the activity or activities in which the employee performs services.

4. You customarily make the rental property available during defined business hours for nonexclusive use by various customers.
5. You provide property for use in a nonrental activity of a partnership, S corporation, or joint venture in your capacity as an owner of an interest in the partnership, S corporation, or joint venture.

Reporting Credits From the Activities

If an activity meets any of the five exceptions listed above, it is not a rental activity. You then must determine:

1. Whether your rental of the property is a trade or business activity (see Trade or Business Activities on page 3) and, if so,
2. Whether you materially participated in the activity for the tax year (see Material Participation on page 3).

• If the activity is a trade or business activity in which you did not materially participate, enter the credits from the activity on Worksheet 4 on page 11.
• If the activity meets any of the five exceptions listed above and is a trade or business activity in which you did materially participate, report the credits from the activity on the forms you normally use.

If the rental activity did not meet any of the five exceptions, it is generally a passive activity. Special rules apply if you conduct the rental activity through a publicly traded partnership (PTP). See Publicly Traded Partnerships (PTPs) on page 15.

If the rental activity is not conducted through a PTP, the passive rental activity is entered in Worksheet 1, 2, 3, or 4 on pages 10 and 11.

Worksheet 1 is for credits (other than rehabilitation credits and low-income housing credits) from passive rental real estate activities in which you actively participated. See Special Allowance for Rental Real Estate Activities on page 3.

Worksheet 2 is for rehabilitation credits from passive rental real estate activities and low-income housing credits for property placed in service before 1990. This worksheet is also used for low-income housing credits from a partnership, S corporation, or other pass-through entity if your interest in the pass-through entity was acquired before 1990, regardless of the date the property was placed in service.

Worksheet 3 is for low-income housing credits for property placed in service after 1989 (unless held through a pass-through entity in which you acquired your interest before 1990).

Worksheet 4 is for credits from passive trade or business activities in which you did not materially participate and passive rental real estate activities in which you did not actively participate (but not rehabilitation credits from passive rental real estate activities or low-income housing credits).

Special Allowance for Rental Real Estate Activities

Active Participation.   If you actively participated in a passive rental real estate activity, you may be able to claim credits from the activity for the tax attributable to a special allowance of up to $25,000, reduced by any passive losses, including the commercial revitalization deduction, allowed under this exception on Form 8582, Passive Activity Loss Limitations.

The special allowance also applies to low-income housing credits and rehabilitation credits from a rental real estate activity, even if you did not actively participate in the activity. The credits allowed under the special allowance are in addition to the credits allowed for the tax attributable to net passive income.

The special allowance is not available if you were married, are filing a separate return for the year, and lived with your spouse at any time during the year.

Only an individual, a qualifying estate, or a qualified revocable trust that made an election to treat the trust as part of the decedent's estate may actively participate in a rental real estate activity. Limited partners may not actively participate unless future regulations provide an exception.

A qualifying estate is the estate of a decedent for tax years ending less than 2 years after the date of the decedent's death if the decedent would have satisfied the active participation requirements for the rental real estate activity for the tax year the decedent died.

A qualified revocable trust may elect to be treated as part of a decedent's estate for purposes of the special allowance for active participation in rental real estate activities. The election must be made by both the executor (if any) of the decedent's estate and the trustee of the revocable trust. For details, see Regulations section 1.645-1.

You are not considered to actively participate in a rental real estate activity if at any time during the tax year your interest (including your spouse's interest) in the activity was less than 10% (by value) of all interests in the activity. Active participation is a less stringent requirement than material participation (see Material Participation below).

You may be treated as actively participating if, for example, you participated in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include:

• Approving new tenants,
• Deciding on rental terms,
• Approving capital or repair expenditures, and
• Other similar decisions.

The maximum special allowance is:

• $25,000 for single individuals and married individuals filing a joint return for the tax year.
• $12,500 for married individuals who file separate returns for the tax year and who lived apart from their spouses at all times during the tax year.
• $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.

Modified adjusted gross income limitation.   If your modified adjusted gross income (defined in the instructions for line 10 on page 10) is $100,000 or less ($50,000 or less if married filing separately), figure your credits based on the amount of the maximum special allowance referred to in the preceding paragraph.

If your modified adjusted gross income is more than $100,000 ($50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your modified adjusted gross income.

Generally, if your modified adjusted gross income is $150,000 or more ($75,000 or more if married filing separately), there is no special allowance.

However, for low-income housing credits for property placed in service before 1990 and for rehabilitation credits, the limits on modified adjusted gross income are increased. If your modified adjusted gross income is more than $200,000 ($100,000 if married filing separately), your special allowance is limited to 50% of the difference between $250,000 ($125,000 if married filing separately) and your modified adjusted gross income.

If your modified adjusted gross income is $250,000 or more ($125,000 or more if married filing separately), there is no special allowance.

No modified adjusted gross income limitation applies when figuring the special allowance for low-income housing credits for property placed in service after 1989 (other than from a pass-through entity in which you acquired your interest before 1990).

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