2023 Instructions for Form 8582

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2023

Instructions for Form 8582

Passive Activity Loss Limitations

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code

unless otherwise noted.

Future Developments

For the latest information about developments related to

Form 8582 and its instructions, such as legislation

enacted after they were published, go to

IRS.gov/

Form8582.

General Instructions

Reminders

Prior year unallowed commercial revitalization de-

duction (CRD). If you have prior year unallowed CRDs

limited by the passive loss rules, you may continue to

include them in the calculations as shown in the Specific

Instructions, beginning with Part I—2023 Passive Activity

Loss, later.

Excess business loss limitation. If you are a

noncorporate taxpayer and have allowable business

losses after taking into account first the at-risk limitations

and then the passive loss limitations (this form), your

losses may be subject to the excess business loss

limitation. After taking into account all the other loss

limitations, complete Form 461, Limitation on Business

Losses, to figure the amount of your excess business

loss. See Form 461 and its instructions for details on the

excess business loss limitation.

Reporting prior year unallowed losses. Form 8582

must generally be filed by taxpayers who have an overall

gain (including any prior year unallowed losses) from

business or rental passive activities. See

Exception under

Who Must File, later.

Regrouping due to Net Investment Income Tax. You

may be able to regroup your activities if you’re subject to

the Net Investment Income Tax. See

Regrouping Due to

Net Investment Income Tax under Grouping of Activities,

later, for more information.

Purpose of Form

Form 8582 is used by noncorporate taxpayers to figure

the amount of any passive activity loss (PAL) for the

current tax year and to report the application of prior year

unallowed PALs.

A PAL occurs when total losses (including prior year

unallowed losses) from all your passive activities exceed

the total income from all your passive activities.

Generally, passive activities include the following.

•

Trade or business activities in which you did not

materially participate for the tax year.

•

Rental activities, regardless of your participation.

PALs can’t be used to offset income from nonpassive

activities. However, a special allowance for rental real

estate activities may allow some losses even if the losses

exceed passive income.

PALs not allowed in the current year are carried

forward until they’re allowed either against passive activity

income; against the special allowance, if applicable; or

when you sell or exchange your entire interest in the

activity in a fully taxable transaction to an unrelated party.

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 is filed by individuals, estates, and trusts who

have passive activity deductions (including prior year

unallowed losses). However, you don’t have to file Form

8582 if you meet the following exception.

Exception

You actively participated in rental real estate activities

(see

Special Allowance for Rental Real Estate Activities,

later), and you meet all of the following conditions.

•

Rental real estate activities with active participation

were your only passive activities.

•

You have no prior year unallowed losses from these (or

any other passive) activities.

•

Your total loss from the rental real estate activities

wasn’t more than $25,000 ($12,500 if married filing

separately).

•

If you’re married filing separately, you lived apart from

your spouse all year.

•

You have no current or prior year unallowed credits

from a passive activity.

•

Your modified adjusted gross income (see the

instructions for

line 6, later) was not more than $100,000

(not more than $50,000 if married filing separately).

•

You don’t hold any interest in a rental real estate activity

as a limited partner or as a beneficiary of an estate or a

trust.

If all the above conditions are met, your rental real

estate losses are not limited, and you don’t need to

complete Form 8582. Enter losses reported on

Schedule E (Form 1040), Supplemental Income and Loss,

Part I, line 21, on Schedule E (Form 1040), Part l, line 22.

For losses from a partnership or an S corporation, enter

the amount of the allowable loss from Schedule K-1 on

Schedule E (Form 1040), Part II, column (g). Enter losses

reported on line 32 of Form 4835, Farm Rental Income

and Expenses, on Form 4835, line 34c.

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Cat. No. 64294A

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Coordination With Other Limitations

Generally, PALs are subject to other limitations (for

example, basis and at-risk limitations) before they’re

subject to the passive loss limitations. Once a loss

becomes allowable under these other limitations, you

must determine whether the loss is limited under the

passive loss rules. See Form 6198, At-Risk Limitations,

for details on the at-risk rules. Also, capital losses that are

allowable under the passive loss rules may be limited

under the capital loss limitations of section 1211.

Percentage depletion deductions that are allowable under

the passive loss rules may be limited under section

613A(d).

If you have allowable business losses after taking into

account the loss limitations discussed above and

computing the allowable passive losses on this form, your

losses may be subject to the excess business loss

limitation. Complete Form 461 to figure the amount of your

excess business loss. Any disallowed loss resulting from

this limitation will be treated as a net operating loss (NOL)

that must be carried forward and deducted in a

subsequent year. See Form 461 and its instructions for

details on the excess business loss limitation.

Definitions

Except as otherwise indicated, the following terms in

these instructions are defined as shown below.

Net income. This is the excess of current year income

over current year deductions from the activity. This

includes any current year gains or losses from the

disposition of assets or an interest in the activity.

Net loss. This is the excess of current year deductions

over current year income from the activity. This includes

any current year gains or losses from the disposition of

assets or an interest in the activity.

Overall gain. This is the excess of the “net income” from

the activity over the prior year unallowed losses from the

activity.

Overall loss. This is (a) the excess of the prior year

unallowed losses from the activity over the “net income”

from the activity, or (b) the prior year unallowed losses

from the activity plus the “net loss” from the activity.

Prior year unallowed losses. These are the losses from

an activity that were disallowed under the PAL limitations

in a prior year and carried forward to the tax year under

section 469(b). See Regulations section 1.469-1(f)(4) and

Pub. 925.

Activities That Are Not Passive

Activities

The following aren’t 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:

a. More than half of the personal services you

performed in trades or businesses during the tax year

were performed in real property trades or businesses in

which you materially participated, and

b. You performed more than 750 hours of services

during the tax year in real property trades or businesses in

which you materially participated.

For purposes of whether you materially participated

under item (2), each interest in rental real estate is a

separate activity, unless you elect to treat all interests in

rental real estate as one activity. For details on making

this election, see the Instructions for Schedule E (Form

1040).

If you’re married filing jointly, one spouse must

separately meet both (2)(a) and (2)(b) 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.

Real property includes land, buildings, and other

inherently permanent structures permanently affixed to

land. Any interest in real property, including fee

ownership, co-ownership, leasehold, option, or similar

interest is real property. Tenant improvements to land,

buildings, or other structures that are inherently

permanent or otherwise classified as real property are real

property for this purpose. See Regulations section

1.469-9(b)(2) for more definitions and information about

determining whether a trade or business is a real property

trade or business.

For examples of the determination of whether a trade or

business is a real property trade or business, see

Regulations section 1.469-9(b)(2)(iii).

Services you performed as an employee aren’t 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.

Note. If a rental real estate activity isn’t a passive activity

for the current year, any prior year unallowed loss is

treated as a loss from a former passive activity. See

Former Passive Activities, later.

3. A working interest in an oil or gas well. Your working

interest must be held directly or through an entity that

doesn’t limit your liability (such as a general partner

interest in a partnership). In this case, it doesn’t 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.

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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’s

actively traded, such as stocks, bonds, and other

securities. See Temporary Regulations section

1.469-1T(e)(6) for more details.

Generally, income and losses from these activities

aren’t entered on Form 8582. However, losses from these

activities may be subject to limitations other than the

passive loss rules.

Trade or Business Activities

A trade or business activity is an activity (other than a

rental activity or an activity treated as incidental to an

activity of holding property for investment) that:

1. Involves the conduct of a trade or business (within

the meaning of section 162),

2. Is conducted in anticipation of starting a trade or

business, or

3. Involves research or experimental expenditures

deductible under section 174.

Trade or business activities are generally reported on

Schedule C (Form 1040), Profit or Loss From Business

(Sole Proprietorship); Schedule F (Form 1040), Profit or

Loss From Farming; or in Part II or III of Schedule E (Form

1040). For trade or business activities that are significant

participation passive activities (defined in item 4 under

Tests for individuals, later), see Pub. 925 for how to report

their income or losses.

Rental Activities

A rental activity is a passive activity even if you materially

participated in the activity (unless it’s a rental real estate

activity in which you materially participated and you were

a real estate professional).

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 doesn’t

matter whether the use is under a lease, a service

contract, or some other arrangement.

However, if you meet any of the five exceptions below,

the rental of the property isn’t treated as a rental activity.

See Reporting Income and Losses From the Activities,

later, if you meet any of the exceptions.

Exceptions

An activity is not a rental activity if any of the following

apply.

1. The average period of customer use is:

a. 7 days or less, or

b. 30 days or less and significant personal services

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 taken into consideration, including 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.

This applies only if the services are performed by

individuals and the customers' use of the 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:

a. You own an interest in the trade or business activity

during the tax year,

b. 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

c. 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 a joint venture in your

capacity as an owner of an interest in the partnership, S

corporation, or joint venture.

Example. If a partner contributes the use of property

to a partnership, none of the partner's distributive share of

partnership income is income from a rental activity unless

the partnership is engaged in a rental activity.

Also, a partner's gross income from a guaranteed

payment under section 707(c) isn’t income from a rental

activity. The determination of whether the property used in

the activity is provided in the partner's capacity as an

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owner of an interest in the partnership is made on the

basis of all the facts and circumstances.

Reporting Income and Losses From the

Activities

If an activity meets any of the five exceptions listed above,

it’s not a rental activity. You must then determine:

1. Whether your rental of the property is a trade or

business activity (see Trade or Business Activities,

earlier), and, if so,

2. Whether you materially participated in the activity

for the tax year (see

Material Participation, later).

If the activity is a trade or business activity in which you

didn’t materially participate, enter the income and losses

from the activity in Part V.

If the activity is a trade or business activity in which you

did materially participate, report any income or loss from

the activity on the forms or schedules normally used.

If the rental activity didn’t meet any of the five

exceptions, it’s generally a passive activity. However,

special rules apply if you conduct the rental activity

through a publicly traded partnership (PTP) or if any of the

rules described under Recharacterization of Passive

Income, later, apply. Also see the PTP rules, later.

If none of the special rules apply, enter the income and

losses from the passive rental activity in Parts IV or V. See

the instructions for

Parts IV and V for details.

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

deduct up to $25,000 of loss from the activity from your

nonpassive income. This special allowance is an

exception to the general rule disallowing losses in excess

of income from passive activities.

The special allowance isn’t 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. Unless future regulations

provide an exception, limited partners are not treated as

actively participating in a partnership's rental real estate

activity.

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’ve 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. To make this election, see the instructions on

Form 8855, Election To Treat a Qualified Revocable Trust

as Part of an Estate.

You aren’t 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, later).

You may be treated as actively participating if, for

example, you participated in making management

decisions or arranged 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 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 (see the instructions for

line 6, later) is $100,000 or less ($50,000 or less if married

filing separately), your loss is deductible up to 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) but less

than $150,000 ($75,000 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.

If you qualify under the active participation rules, use

Part IV. See the instructions for

Part IV, later.

Material Participation

For the material participation tests listed below,

participation generally includes any work done in

connection with an activity if you owned an interest in the

activity at the time you did the work. The capacity in which

you did the work doesn’t matter. However, work isn’t

participation if:

•

It isn’t work that an owner would customarily do in the

same type of activity, and

•

One of your main reasons for doing the work was to

avoid the disallowance of losses or credits from the

activity under the passive activity rules.

Proof of participation. You may prove your participation

in an activity by any reasonable means. You don’t have to

maintain contemporaneous daily time reports, logs, or

similar documents if you can establish your participation

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by other reasonable means. For this purpose, reasonable

means include, but are not limited to, identifying services

performed over a period of time and the approximate

number of hours spent performing the services during that

period, based on appointment books, calendars, or

narrative summaries.

Tests for individuals. You materially participated for the

tax year in an activity if you satisfy at least one of the

following tests.

1. You participated in the activity for more than 500

hours.

2. Your participation in the activity for the tax year was

substantially all of the participation in the activity of all

individuals (including individuals who didn’t own any

interest in the activity) for the year.

3. You participated in the activity for more than 100

hours during the tax year, and you participated at least as

much as any other individual (including individuals who

didn’t own any interest in the activity) for the year.

4. The activity is a significant participation activity for

the tax year, and you participated in all significant

participation activities during the year for more than 500

hours.

A significant participation activity is any trade or

business activity in which you participated for more than

100 hours during the year and in which you didn’t

materially participate under any of the material

participation tests (other than this fourth test).

5. You materially participated in the activity (other than

by meeting this fifth test) for any 5 (whether or not

consecutive) of the 10 immediately preceding tax years.

6. The activity is a personal service activity in which

you materially participated for any 3 (whether or not

consecutive) preceding tax years.

An activity is a personal service activity if it involves the

performance of personal services in the fields of health,

law, engineering, architecture, accounting, actuarial

science, performing arts, consulting, or in any other trade

or business in which capital isn’t a material

income-producing factor.

7. Based on all the facts and circumstances, you

participated in the activity on a regular, continuous, and

substantial basis during the tax year.

You didn’t materially participate in the activity under this

seventh test, however, if you participated in the activity for

100 hours or less during the tax year.

Your participation in managing the activity doesn’t

count in determining whether you materially participated

under this test if:

a. Any person (except you) received compensation for

performing services in the management of the activity, or

b. Any individual spent more hours during the tax year

performing services in the management of the activity

than you did (regardless of whether the individual was

compensated for the management services).

Test for a spouse. Participation by your spouse during

the tax year in an activity you own may be counted as your

participation in the activity even if your spouse didn’t own

an interest in the activity and whether or not you and your

spouse file a joint return for the tax year.

Tests for investors. Work done as an investor in an

activity isn’t treated as participation unless you were

directly involved in the day-to-day management or

operations of the activity. For purposes of this test, work

done as an investor includes the following.

1. Studying and reviewing financial statements or

reports on operations of the activity.

2. Preparing or compiling summaries or analyses of

the finances or operations of the activity for your own use.

3. Monitoring the finances or operations of the activity

in a nonmanagerial capacity.

Special rules for limited partners. If you were a limited

partner in an activity, you generally didn’t materially

participate in the activity. You did materially participate in

the activity, however, if you met material participation test

1, 5, or 6 under

Tests for individuals, earlier, for the tax

year.

However, for purposes of the material participation

tests, you aren’t treated as a limited partner if you also

were a general partner in the partnership at all times

during the partnership's tax year ending with or within your

tax year (or, if shorter, during the portion of the

partnership's tax year in which you directly or indirectly

owned your limited partner interest).

Special rules for certain retired or disabled farmers

and surviving spouses of farmers. Certain retired or

disabled farmers and surviving spouses of farmers are

treated as materially participating in a farming activity if

the real property used in the activity would meet the estate

tax rules for special valuation of farm property passed

from a qualifying decedent. See Temporary Regulations

section 1.469-5T(h)(2).

Estates and trusts. The PAL limitations apply in figuring

the distributable net income and taxable income of an

estate or trust. The rules for determining material

participation for this purpose haven’t yet been issued.

Grouping of Activities

Generally, one or more trade or business activities or

rental activities may be treated as a single activity if the

activities make up an appropriate economic unit for the

measurement of gain or loss under the passive activity

rules.

Whether activities make up an appropriate economic

unit depends on all the relevant facts and circumstances.

The factors given the greatest weight in determining

whether activities make up an appropriate economic unit

are:

1. Similarities and differences in types of trades or

businesses,

2. The extent of common control,

3. The extent of common ownership,

4. Geographical location, and

5. Interdependencies between or among the activities.

Example. You have a significant ownership interest in

a bakery and a movie theater in Baltimore and in a bakery

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and a movie theater in Philadelphia. Depending on all the

relevant facts and circumstances, there may be more than

one reasonable method for grouping your activities. For

instance, the following groupings may or may not be

permissible.

•

A single activity.

•

A movie theater activity and a bakery activity.

•

A Baltimore activity and a Philadelphia activity.

•

Four separate activities.

Once you choose a grouping under these rules, you

must continue using that grouping in later tax years unless

it’s determined that the original grouping was clearly

inappropriate or a material change in the facts and

circumstances makes it clearly inappropriate.

The IRS may regroup your activities if your grouping

fails to reflect one or more appropriate economic units and

one of the primary purposes of your grouping is to avoid

the passive activity limitations.

Limitation on grouping certain activities. The

following activities may not be grouped together.

1. A rental activity with a trade or business activity

unless the activities being grouped together make up an

appropriate economic unit and:

a. The rental activity is insubstantial relative to the

trade or business activity or vice versa, or

b. Each owner of the trade or business activity has the

same proportionate ownership interest in the rental

activity. If so, the portion of the rental activity involving the

rental of property used in the trade or business activity

may be grouped with the trade or business activity.

2. An activity involving the rental of real property with

an activity involving the rental of personal property (except

personal property provided in connection with the real

property or vice versa).

3. Any activity with another activity in a different type

of business and in which you hold an interest as a limited

partner if that other activity engages in holding, producing,

or distributing motion picture films or videotapes; farming;

leasing section 1245 property; or exploring for or

exploiting oil and gas resources or geothermal deposits.

4. Any trading activities in which you don't materially

participate. A trading activity is an activity of trading in

personal property. For this purpose, personal property is

any personal property that is actively traded, for example,

financial securities. A taxpayer who does not materially

participate in a trading activity is prohibited from grouping

the activity with any other activity, including any other

trading activity. The prohibition on grouping is effective for

taxable years beginning on or after March 22, 2021. If you

are a calendar year taxpayer, the new provisions first

applied to you in calendar year 2022.

Activities conducted through partnerships, S corpo-

rations, and C corporations subject to section 469.

Once a partnership or corporation determines its activities

under these rules, a partner or shareholder may use these

rules to group those activities with:

•

Each other,

•

Activities conducted directly by the partner or

shareholder, or

•

Activities conducted through other partnerships and

corporations.

A partner or shareholder may not treat as separate

activities those activities grouped together by the

partnership or corporation.

Regrouping Due to Net Investment Income Tax

You may be able to regroup your activities, as described

below, if you’re subject to the Net Investment Income Tax

(NIIT) for the first time. For detailed information, see

Regulations section 1.469-11(b)(3)(iv).

Regrouping on an original return. Under the NIIT fresh

start election, you may regroup for the first tax year you’re

subject to the NIIT (without regard to the effect of

regrouping). You may regroup only once under this

election and that regrouping will apply to the tax year for

which you regroup and all future tax years. You’re eligible

to regroup if:

1. You weren’t previously subject to the NIIT;

2. The amount you would have entered on Form 8960,

line 12, without the regrouping, would have been greater

than zero; and

3. The amount you would have entered on Form 8960,

line 13, without the regrouping, would have been greater

than the amount you would have entered on Form 8960,

line 14, without the regrouping.

Regrouping on an amended return. You may regroup

your activities on an amended tax return, but only if you

weren’t subject to the NIIT on your original return (or

previously amended return). You’re eligible if:

1. You weren’t previously subject to the NIIT for the tax

year for which you’re filing an amended return or any prior

tax year;

2. The changes on the amended return cause you to

be subject to the NIIT for the first time beginning in the

taxable year for which you’re amending the return;

3. The limitation period for assessments under section

6501 hasn’t ended;

4. The changes on your amended return cause the

amount on Form 8960, line 12, of your amended return to

be greater than zero; and

5. The changes on your amended return cause the

amount on Form 8960, line 13, of your amended return to

be greater than the amount entered on Form 8960,

line 14.

This rule applies equally to changes to modified

adjusted gross income or net investment income upon an

IRS examination.

Manner of regrouping. If you regroup your activities

under this rule, you must attach to your original or

amended return, as applicable, a statement that satisfies

the requirements described in Regrouping under

Disclosure Requirement next.

Disclosure Requirement

The following disclosure requirements for groupings

apply. You’re required to report certain changes to your

groupings that occur during the tax year to the IRS. If you

fail to report these changes, each trade or business

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activity or rental activity will be treated as a separate

activity. You’ll be considered to have made a timely

disclosure if you filed all affected income tax returns

consistent with the claimed grouping and make the

required disclosure on the income tax return for the year in

which you first discovered the failure to disclose. If the IRS

discovered the failure to disclose, you must have

reasonable cause for not making the required disclosure.

For more information on disclosure requirements, see

Revenue Procedure 2010-13, available at

IRS.gov/irb/

2010-04_IRB#RP-2010-13.

New grouping. You must file a written statement with

your original income tax return for the first tax year in

which two or more activities are originally grouped into a

single activity. The statement must provide the names,

addresses, and employer identification numbers (EINs), if

applicable, for the activities being grouped as a single

activity. In addition, the statement must contain a

declaration that the grouped activities make up an

appropriate economic unit for the measurement of gain or

loss under the passive activity rules.

Addition to an existing grouping. You must file a

written statement with your original income tax return for

the tax year in which you add a new activity to an existing

group. The statement must provide the name, address,

and EIN, if applicable, for the activity that’s being added

and for the activities in the existing group. In addition, the

statement must contain a declaration that the activities

make up an appropriate economic unit for the

measurement of gain or loss under the passive activity

rules.

Regrouping. You must file a written statement with your

original income tax return for the tax year in which you

regroup the activities. The statement must provide the

names, addresses, and EINs, if applicable, for the

activities that are being regrouped. If two or more activities

are being regrouped into a single activity, the statement

must contain a declaration that the regrouped activities

make up an appropriate economic unit for the

measurement of gain or loss under the passive activity

rules. In addition, the statement must contain an

explanation of the material change in the facts and

circumstances that made the original grouping clearly

inappropriate.

Passive Activity Income and

Deductions

Take into account only passive activity income and

passive activity deductions to figure your net income or

net loss from all passive activities or any passive activity.

If your passive activity is reported on Schedule C, E, or

F, and the activity has no prior year unallowed losses or

any gain or loss from the disposition of assets or an

interest in the activity, take into account only the passive

activity income and passive activity deductions from the

activity to figure the amount to enter on Form 8582.

If you own an interest in a passive activity through a

partnership or an S corporation, the partnership or S

corporation will generally provide you with the net income

or net loss from the passive activity. If, however, the

partnership or S corporation must state an item of gross

income or deduction separately to you, and the gross

income or deduction is passive activity gross income or a

passive activity deduction (respectively), include that

amount in the net income or net loss entered on Form

8582.

The partnership or S corporation doesn’t have a

record of your prior year unallowed losses from

the passive activities of the partnership or S

corporation. If you had prior year unallowed losses from

these activities, they can be found in column (c) of your

2022 Part VIII.

Passive Activity Income

To figure your overall gain or loss from all passive

activities or any passive activity, take into account only

passive activity income. Don’t enter income that isn’t

passive activity income on Form 8582.

Passive activity income includes all income from

passive activities (with certain exceptions described in

Temporary Regulations section 1.469-2T(c)(2) and

Regulations section 1.469-2(c)(2)), including gain from

the disposition of an interest in a passive activity and from

the disposition of property used in a passive activity at the

time of the disposition.

Passive activity income doesn’t include the following.

•

Income from an activity that isn’t a passive activity.

•

Portfolio income, including interest (other than

self-charged interest treated as passive activity income,

discussed later), dividends, annuities, and royalties not

derived in the ordinary course of a trade or business, and

gain or loss from the disposition of property that produces

portfolio income or is held for investment (see section

163(d)(5)). See Temporary Regulations section

1.469-2T(c)(3).

•

Alaska Permanent Fund dividends.

•

Personal service income, including salaries, wages,

commissions, self-employment income from trade or

business activities in which you materially participated for

the tax year, deferred compensation, taxable social

security and other retirement benefits, and payments from

partnerships to partners for personal services. See

Temporary Regulations section 1.469-2T(c)(4).

•

Income from positive section 481 adjustments allocated

to activities other than passive activities. See Temporary

Regulations section 1.469-2T(c)(5).

•

Income or gain from investments of working capital.

•

Income from an oil or gas property if you treated any

loss from a working interest in the property for any tax

year beginning after 1986 as a nonpassive loss under the

rule excluding working interests in oil and gas wells from

passive activities (see item 3 under Activities That Are Not

Passive Activities, earlier). See Regulations section

1.469-2(c)(6).

•

Any income from intangible property if your personal

efforts significantly contributed to the creation of the

property.

•

Any income treated as not from a passive activity under

Temporary Regulations section 1.469-2T(f) and

Regulations section 1.469-2(f). See Recharacterization of

Passive Income, later.

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•

Overall gain from any interest in a PTP (see item 2

under Passive activity loss rules for partners in PTPs,

later).

•

State, local, and foreign income tax refunds.

•

Income from a covenant not to compete.

•

Any reimbursement of a casualty or theft loss included

in income as recovery of all or part of a prior year loss

deduction if the deduction for the loss wasn’t treated as a

passive activity deduction.

•

Cancellation of debt income to the extent that at the

time the debt was discharged, the debt wasn’t properly

allocable under Temporary Regulations section 1.163-8T

to passive activities.

Recharacterization of Passive Income

Certain income from passive activities must be

recharacterized and excluded from passive activity

income. The amount of income recharacterized equals

the net income from the sources given below. If during the

tax year you received net income from any of these

sources (either directly or through a partnership or an S

corporation), see Pub. 925 to find out how to report net

income or loss from these sources. For more information,

see Temporary Regulations section 1.469-2T(f) and

Regulations section 1.469-2(f).

Income from the following sources may be subject to

the net income recharacterization rules.

•

Significant participation passive activities defined in

item 4 under

Tests for individuals, earlier.

•

Rental of property if less than 30% of the unadjusted

basis of the property is subject to depreciation.

•

Passive equity-financed lending activities.

•

Rental of property incidental to a development activity.

•

Rental of property to a nonpassive activity.

•

Acquisition of an interest in a pass-through entity that

licenses intangible property.

Passive Activity Deductions

To figure your overall gain or overall loss from all passive

activities or any passive activity, take into account only

passive activity deductions.

Passive activity deductions include all deductions from

activities that are passive activities for the current tax year

and all deductions from passive activities that were

disallowed under the PAL rules in prior tax years and

carried forward to the current tax year. See Regulations

section 1.469-1(f)(4).

Passive activity deductions include any loss from a

disposition of property used in a passive activity at the

time of the disposition and any loss from a disposition of

less than your entire interest in a passive activity. See

Dispositions, later, for the treatment of losses upon

disposition of your entire interest in an activity.

Passive activity deductions don’t include the following.

•

Deductions for expenses (other than interest expense)

that are clearly and directly allocable to portfolio income.

•

Qualified home mortgage interest, capitalized interest

expenses, and other interest expenses (except

self-charged interest treated as a passive activity

deduction (discussed next) and interest expenses

properly allocable to passive activities).

•

Losses from dispositions of property that produce

portfolio income or property held for investment.

•

State, local, and foreign income taxes.

•

Charitable contribution deductions.

•

Net operating loss deductions, percentage depletion

carryovers under section 613A(d), and capital loss

carryovers.

•

Deductions and losses that would’ve been allowed for

tax years beginning before 1987, but for basis or at-risk

limitations.

•

Net negative section 481 adjustments allocated to

activities other than passive activities. See Temporary

Regulations section 1.469-2T(d)(7).

•

Deductions for losses attributable to a federally

declared disaster.

•

The deduction allowed for the deductible part of

self-employment taxes.

Self-Charged Interest

Certain self-charged interest income or deductions may

be treated as passive activity gross income or passive

activity deductions if the loan proceeds are used in a

passive activity. Generally, self-charged interest income

and deductions result from loans between you and a

partnership or S corporation in which you had a direct or

indirect ownership interest. This includes both loans you

made to the partnership or S corporation and loans the

partnership or S corporation made to you. It also includes

loans from one partnership or S corporation to another

partnership or S corporation if each owner in the

borrowing entity has the same proportional ownership

interest in the lending entity.

The self-charged interest rules don’t apply to your

interest in a partnership or S corporation if the entity made

an election under Regulations section 1.469-7(g) to avoid

the application of these rules. For more details on the

self-charged interest rules, see Regulations section

1.469-7.

Former Passive Activities

A former passive activity is any activity that was a passive

activity in a prior tax year but is not a passive activity in the

current tax year. A prior year unallowed loss from a former

passive activity is allowed to the extent of current year

income from the activity.

If current year net income from the activity is less than

or equal to the prior year unallowed loss, enter the prior

year unallowed loss and any current year net income from

the activity on Form 8582.

If current year net income from the activity is more than

the prior year unallowed loss from the activity, enter the

prior year unallowed loss and the current year net income

up to the amount of prior year unallowed loss on Form

8582.

If the activity has a net loss for the current year, enter

the prior year unallowed loss (but not the current year

loss) on Form 8582.

To report a disposition of a former passive activity,

follow the rules under Dispositions next.

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Dispositions

Disposition of an Entire Interest

If you disposed of your entire interest in a passive activity

or a former passive activity to an unrelated person in a

fully taxable transaction during the tax year, your losses

allocable to the activity for the year aren’t limited by the

PAL rules.

A fully taxable transaction is a disposition in which you

recognize all realized gain or loss.

If you’re using the installment method to report this kind

of disposition, figure the loss for the current year that isn’t

limited by the PAL rules by multiplying your overall loss

(which doesn’t include losses allowed in prior years) by

the following fraction:

Gain recognized in the current year

Unrecognized gain as of the beginning of the current

year

A partner in a PTP isn’t treated as having disposed of

an entire interest in an activity of a PTP until there’s an

entire disposition of the partner's interest in the PTP.

Reporting an Entire Disposition on Form 4797 or

Form 8949

If you completely dispose of your entire interest in a

passive activity or a former passive activity, you may have

to report net income or loss and prior year unallowed

losses from the activity. All the net income and losses are

reported on the forms and schedules normally used.

Combine all income and losses (including any prior

year unallowed losses) from the activity for the tax year to

see if you have an overall gain or loss.

If you have an overall gain, report the income, losses,

and prior year unallowed losses in Part IV or V.

If you have an overall gain and this is a former passive

activity, report all income and losses (including any prior

year unallowed losses) on the forms and schedules

normally used and don’t use Form 8582.

If you have an overall loss when you combine the

income and losses, don’t use Form 8582 for the activity.

All losses (including prior year unallowed losses) are

allowed in full. Report the income and losses on the forms

and schedules normally used.

An overall loss from an entire disposition of a passive

activity is a nonpassive loss if you have an aggregate loss

from all other passive activities. When figuring your

modified adjusted gross income for Part II, line 6, of Form

8582, be sure to take into account the overall loss from

the disposition of the activity.

Example 1. Activity with overall gain. You sell your

entire interest in a rental real estate activity in which you

actively participated for a gain of $15,525. $7,300 of the

gain is section 1231 gain reported on Form 4797,

Part I, and $8,225 is ordinary recapture income reported

on Form 4797, Part II. On line 22 of Schedule E (Form

1040), you report a total loss of $15,450, which includes a

current year $2,800 net loss and a $12,650 prior year

unallowed loss. You have an overall gain from the

disposition ($15,525 – $15,450 = $75).

Because you had an overall gain, you make the

following entries in Part IV. You enter the $15,525 gain on

the disposition in column (a), the current year loss of

$2,800 in column (b), and the prior year unallowed loss of

$12,650 in column (c).

Example 2. Activity with overall loss. You sell your

entire interest in an oil and gas limited partnership that

was your only passive activity for a gain of $2,000. You

have a current year Schedule E loss of $3,330 and a

Schedule E prior year unallowed loss of $1,115.

Because you have an overall loss of $2,445 after

combining the gain and losses, none of the amounts are

entered on Form 8582.

You enter the net loss plus the prior year unallowed

loss ($3,330 + $1,115 = $4,445) on Schedule E, Part II,

column (i), and the $2,000 gain on the sale on Form 8949,

in either Part I or Part II, depending on how long you held

the partnership interest.

Disposition of Less Than an Entire Interest

Gains and losses from the disposition of less than an

entire interest in an activity are treated as part of the net

income or net loss from the activity for the current year.

A disposition of less than substantially all of an

entire interest doesn’t trigger the allowance of

prior year unallowed losses.

Disposition of Substantially All of an Activity

You may treat the disposition of substantially all of an

activity as a separate activity if you can prove with

reasonable certainty:

1. The prior year unallowed losses, if any, allocable to

the part of the activity disposed of; and

2. The net income or loss for the year of disposition

allocable to the part of the activity disposed of.

Specific Instructions

Part I—2023 Passive Activity Loss

Use Part I to combine the net income and net loss from all

passive activities to determine if you have a passive

activity loss (PAL) for 2023. Use Parts IV and V first to

determine the entries for lines 1 and 2 of Part I, as follows.

•

Use Part IV for rental real estate activities with active

participation.

•

Use Part V for all other passive activities.

Line 3. If you have prior year unallowed CRD from rental

real estate activities, treat that dollar amount as negative

and combine with lines 1d and 2d. Enter the combined

amount on line 3 and enter “CRD” and the dollar amount

of the CRD (as a negative) on the dotted line.

Note. If you included prior year unallowed CRD from

rental real estate activities in line 3, and line 3 is a loss and

line 1d is zero or more, go to the instructions for Part II,

line 9, later.

CAUTION

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If you need additional lines for any of the Parts IV

through IX, you can either attach copies of the

applicable pages of Form 8582, or your own

schedule that’s in the same format as the applicable

part(s).

Part IV

Individuals and qualifying estates who actively

participated in rental real estate activities must include the

income or loss from those activities in Part IV to figure the

amounts to enter on Part I, lines 1a through 1c, of Form

8582.

Don’t enter a prior year unallowed loss in column (c) of

Part IV unless you actively participated in the activity in

both the year the loss arose and the current tax year. If

you didn’t actively participate in both years, enter the prior

year unallowed loss in column (c) of Part V.

Married individuals who file separate returns and

lived with their spouses at any time during the tax

year don’t qualify under the active participation

rule and must use Part V instead of Part IV.

Column (a). Enter the current year net income from each

activity. Enter the total of column (a) on Part I, line 1a, of

Form 8582.

Example. A Schedule E rental activity has current year

profit of $5,000 and a Form 4797 gain of $2,000. You

enter $7,000 in column (a).

Column (b). Enter the current year net loss for each

activity. Don’t enter any prior year unallowed losses in this

column. Enter the total of column (b) on Part I, line 1b, of

Form 8582.

If an activity has net income on one form or schedule

and a net loss on another form or schedule, report the net

amounts separately in columns (a) and (b) of Part IV.

Example. A Schedule E rental activity has current year

income of $1,000 on line 21 of Schedule E and a current

year Form 4797 loss of $4,500. You enter $1,000 in

column (a) and $4,500 in column (b).

Column (c). Enter the prior year unallowed losses for

each activity. You find these amounts in Part VII, column

(c), of your 2022 Form 8582. Enter the total of column (c)

from your 2023 Part IV on Part I, line 1c, of Form 8582.

Columns (d) and (e). Combine income and losses in

columns (a) through (c) for each activity, and either enter

the overall gain for the activity in column (d) or enter the

overall loss for the activity in column (e). Don’t enter

amounts from columns (d) and (e) in Parts I, II, or III of

Form 8582. These amounts will be used when the rest of

Form 8582 is completed to figure the loss allowed for the

current year.

Part V

Use Part V to figure the amounts to enter on Part I, lines

2a through 2c, for:

•

Passive trade or business activities,

•

Passive rental real estate activities that don’t qualify for

the special allowance, and

•

Rental activities other than rental real estate activities.

TIP

CAUTION

If you have prior year unallowed CRD from passive

activities other than rental real estate activities, include

that amount in Part V. Add "CRD" after the name of the

activity.

Column (a). Enter the current year net income for each

activity. Enter the total of column (a) on Part I, line 2a, of

Form 8582. (See the example under Column (a) for Part

IV, earlier.)

Column (b). Enter the current year net loss for each

activity. Enter the total of column (b) on Part I, line 2b, of

Form 8582. (See the example under

Column (b) for Part

IV, earlier.)

Column (c). Enter the unallowed losses for the prior

years for each activity. You find these amounts in Part VII,

column (c), of your 2022 Form 8582. Enter the total of

column (c) from your 2023 Part V on Part I, line 2c, of

Form 8582.

Columns (d) and (e). Combine income and losses in

columns (a) through (c) for each activity, and either enter

the overall gain for the activity in column (d) or enter the

overall loss for the activity in column (e). Don’t enter

amounts from columns (d) and (e) in Parts I, II, or III of

Form 8582. These amounts will be used when the rest of

Form 8582 is completed to figure the loss allowed for the

current year.

Part II—Special Allowance for Rental

Real Estate Activities With Active

Participation

If your filing status is married filing separately and

you lived with your spouse at any time during the

year, you are not eligible for the special

allowances in Part II. Do not complete Part II. Instead, go

to Part III of Form 8582. See the instructions for

Part

III—Total Losses Allowed, later.

Use Part II to figure the maximum amount of rental loss

allowed if you have an overall loss on Part I, line 1d, from

your rental real estate activities you actively participated in

during 2023.

Note. If you included prior year unallowed CRD from

rental real estate activities in line 3, first figure the special

$25,000 allowance for losses from rental real estate

activities with active participation from Part I, line 1d, if

any, without regard to the CRD, by completing lines 4

through 8. To apply any remaining portion of the $25,000

allowance to prior year unallowed CRD from rental real

estate activities, see the instructions for

line 9.

If you’re claiming both the premium tax credit

(PTC) and self-employed health insurance

deduction (SEHID) and Part I, lines 1d and 3, of

Form 8582 are both losses, see

Self-Employed Health

Insurance Deduction and PTC in Pub. 974. You’ll have to

complete worksheets in Pub. 974 before you complete

Part II of Form 8582.

Enter all numbers in Part II as positive amounts (that is,

greater than zero).

CAUTION

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Example. Part II, line 4, has a loss of $42,000

(reported as a positive amount) and line 8 is $25,000. You

enter $25,000 on line 9 (the smaller of line 4 or line 8, both

treated as positive amounts).

Note. If you included prior year unallowed CRD from

rental real estate activities in line 3, and line 3 is a loss and

line 1d is a loss, complete lines 4 through 8, then see the

instructions for line 9 below. If line 1d of Part I is zero or

more, and line 3 is a loss, go directly to the instructions for

line 9 below.

Line 4. Enter on line 4 the smaller of the loss on Part I,

line 1d, or the loss on line 3.

Example. Part I, line 1d, has a loss of $3,000 and

line 2d has a gain of $100. The combined loss on line 3 is

$2,900. You enter $2,900 as a positive number on Part II,

line 4 (the smaller of the loss on Part I, line 1d, or the loss

on line 3).

Line 5. Married persons filing separate returns who lived

apart from their spouses at all times during the year must

enter $75,000 on line 5 instead of $150,000.

Line 6. To figure modified adjusted gross income,

combine all the amounts used to figure adjusted gross

income except don’t take into account:

•

Passive income or loss included on Form 8582,

•

Any rental real estate loss allowed to real estate

professionals (defined under Activities That Are Not

Passive Activities, earlier),

•

Any overall loss from a PTP,

•

The taxable amount of social security and tier 1 railroad

retirement benefits,

•

Deductible contributions to traditional individual

retirement accounts (IRAs) and section 501(c)(18)

pension plans,

•

The deduction allowed for the deductible part of

self-employment taxes,

•

The exclusion from income of interest from series EE

and I U.S. savings bonds used to pay higher education

expenses,

•

The exclusion of amounts received under an

employer's adoption assistance program,

•

The student loan interest deduction, or

•

The deduction allowed for foreign-derived intangible

income and global intangible low-taxed income.

Include in modified adjusted gross income any portfolio

income and expenses that are clearly and directly

allocable to portfolio income. Also include any income

that’s treated as nonpassive income, such as overall gain

from a PTP and net income from an activity or item of

property subject to the recharacterization of passive

income rules.

When figuring modified adjusted gross income, include

any overall loss from the entire disposition of a passive

activity (considered a nonpassive loss).

Example. Your adjusted gross income on line 11 of

Form 1040 or Form 1040-SR is $92,000 and you have

taxable social security benefits of $5,500 on line 6b. Your

modified adjusted gross income is $86,500 ($92,000 –

$5,500).

Line 8.

Don’t enter more than $12,500 on line 8 if you’re

married filing a separate return and you and your spouse

lived apart at all times during the year.

Line 9. If you do not have prior year unallowed CRD from

rental real estate activities, enter the smaller of line 4 or

line 8 on line 9.

If you have prior year unallowed CRD from rental real

estate activities included in line 3 of Part I, and you have a

loss on line 1d and line 3 of Part I, first figure the special

$25,000 special allowance for losses from rental real

estate activities with active participation, without regard to

the CRD, by completing lines 4 through 8, then go to the

Worksheet below. If line 1d of Part I is zero or more, and

line 3 is a loss, complete the Worksheet below and enter

the result on line 9 as described below.

The remaining portion of the $25,000 allowance, if any,

is available for the prior year unallowed CRD from rental

real estate activities. Use the Worksheet to figure the

maximum amount of prior year unallowed CRD allowed

from rental real estate activities.

Worksheet for Special Allowance for Prior

Unallowed Commercial Revitalization Deductions

From Rental Real Estate Activities

Enter all numbers in this calculation as positive amounts (greater than

zero)

A. Enter $25,000* reduced by the amount, if any, of the

smaller of Part II, line 4 or line 8 ...................

B. Enter the loss from Part I, line 3 .................

C. Reduce line B by the amount of the smaller of Part II,

line 4 or line 8 ................................

D. Enter the smallest of the amount of the prior unallowed

CRD (as a positive amount), the amount on line A, or the

amount on line C ..............................

* Enter $12,500 (reduced by the amount, if any, of the smaller of Part II, line 4

or line 8) on line A if you’re married but filing a separate return and you and

your spouse lived apart at all times during the year.

Combine line D with the smaller of line 4 or line 8 and

enter the combined amount on line 9. Enter “CRD” and the

dollar amount of the special allowance for CRD on the

dotted line.

Part III—Total Losses Allowed

Use Part III to figure the amount of the losses from all

passive activities (as determined in Part I) allowed for

2023.

Line 11. Use Parts IV through IX of Form 8582 and the

related instructions to figure the unallowed loss to be

carried forward and the allowed loss to report on your

forms and schedules for 2023.

Parts IV and V

Parts IV and V, columns (d) and (e), show whether an

activity had an overall gain or loss. If you have activities

that show overall gain in column (d) of Parts IV or V, report

all the income and losses listed in columns (a), (b), and (c)

for those activities on the proper forms and schedules,

including Form 8582.

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If you have activities that show an overall loss in

column (e) of Parts IV or V, you must allocate your

allowed loss on Part III, line 11, of Form 8582 to those

activities by completing Parts VI, VII, plus VIII and/or IX.

Complete Part VI only if you entered an amount (other

than zero) on Part II, line 9, of Form 8582. Otherwise, skip

Part VI and complete Part VII for all activities in Part IV or

V that have overall losses in column (e) and any amount

of prior year unallowed CRD included in line 3.

Part VI

Use Part VI to allocate the special allowance on Part II,

line 9, of Form 8582 among your rental real estate

activities.

If you used the Worksheet in the instructions for line 9

to apply any remaining special allowance to prior year

unallowed CRD from one or more rental real estate

activities, complete a separate Part VI to allocate that

portion of the special allowance to those CRD activities.

In the first column of Part VI, enter the name of each

activity. In the second column, enter the form or schedule

and line number on which the loss will be reported.

Example. You receive a Schedule K-1 from

partnership P that reports losses from two rental real

estate activities, Activity X and Activity Y. The losses from

partnership P are reported on line 28A of Schedule E. In

the first two columns of Part VI, enter:

Name of Activity Form or Schedule

Activity X Sch E, line 28A

Activity Y Sch E, line 28A

If the loss from an activity is reported in more than one

place, identify both locations in the second column (for

example, Sch E, line 28A/Form 4797, line 2). If you need

additional space, show this information on an attached

statement.

If you entered an amount on Part II, line 9, and there is

no amount included in line 9 from prior year disallowed

CRD, list in Part VI all activities with an overall loss in

column (e) of Part IV.

If you also included an amount for prior year unallowed

CRD from rental real estate activities in line 9, complete

another Part IV for these CRD activities. You can use

another Part IV or your own schedule in the same format

as Part IV. Enter the prior year unallowed CRD for each

activity in column (a) of the second Part IV. Then follow

the instructions for column (b) and column (c) below for

each Part IV.

Column (a). Enter the overall loss from column (e) of

Part IV for each activity.

Column (b). Divide each of the individual losses shown

in column (a) by the total of all the losses in column (a),

and enter this ratio for each activity in column (b). The

total of all the ratios in column (b) must equal 1.00.

Column (c). Multiply each ratio in column (b) by the

amount on Part II, line 9, of Form 8582, if there is no prior

year unallowed CRD from rental real estate activities, and

enter the results in column (c). The total of column (c)

must be the same as Part II, line 9, of Form 8582.

If there is prior year unallowed CRD included in Part II,

line 9:

1. For the Part VI for rental real estate activities with

active participation, multiply each ratio in column (b) by

the lesser of line 4 or line 8; and

2. For the Part VI for prior year unallowed CRD,

multiply each ratio in column (b) by the amount from line D

of the Worksheet in the instructions for line 9 above.

The total of column (c) for the Part VI for rental real estate

activities with active participation should be the same as

the lesser of line 4 or line 8, Part II, and the total of column

should be the amount from line D of the Worksheet.

Column (c) total is the same as column (a) total. If

the total losses in column (c) are the same as those in

column (a), the losses in Part IV (or, in the case of the

second Part VI for prior unallowed CRD, the additional

amount listed in Part I, line 3) are allowed in full and aren’t

carried over to Part VII. Report all amounts in columns (a),

(b), and (c) of Part IV on the proper forms and schedules.

Column (c) total is less than column (a) total. If the

total losses in column (c) are less than the total losses in

column (a), complete column (d).

Column (d). Subtract column (c) from column (a) and

enter the results in column (d). Also enter the amounts

from column (d) of Part VI in column (a) of Part VII.

Part VII—Allocation of Unallowed Losses

Complete Part VII if any activities have an overall loss in

column (e) of Part V or losses in column (d) of Part VI (in

column (e) of Part IV and any prior year unallowed CRD

included in Part I, line 3, if you didn’t have to complete

Part VI).

On Part VII, enter the name of each activity and the

form or schedule and line number on which the loss will

be reported. See the Example for Part VI. If you have prior

year unallowed CRD from a passive activity other than

rental real estate in Part V, and/or unallowed losses for

prior year CRD from a rental real estate activity in Part VI,

column (d), add “CRD” after the name of each of the

activities.

Column (a). Enter the amounts, if any, from column (d)

of Part VI (from column (e) of Part IV and any prior year

unallowed CRD included in Part I, line 3, if you didn’t have

to complete Part VI). Also enter the losses, if any, from

column (e) of Part V.

Column (b). Divide each of the individual losses shown

in column (a) by the total of all the losses in column (a)

and enter this ratio for each activity in column (b). The

total of all the ratios must equal 1.00.

Column (c). Complete the following computation.

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A. Enter as a positive amount

Part I, line 3, of Form 8582 ..........

B. Enter Part II, line 9, of

Form 8582 ....................

C. Subtract line B from

line A .......................

Multiply each ratio in column (b) by the amount on line

C above, and enter the result in column (c).

Parts VIII and IX

Parts VIII and IX figure your unallowed and allowed losses

for each activity.

If you have losses from any activity that are reported on

two or more different forms or schedules, use Part IX

instead of Part VIII for that activity.

Also use Part IX instead of Part VIII for any activity with

two or more transactions that are reported on the same

form or schedule but must be separately identified for tax

purposes. Transactions that must be separately identified

include capital losses that are 28% rate losses and those

that aren’t.

Note. 28% rate gain or loss includes all collectibles gains

and deductible long-term losses and section 1202 gain on

the sale of qualified small business stock. See the

Instructions for Schedule D for details.

Part VIII—Allowed Losses

Use Part VIII for any activity listed in Part VII if all the loss

from that activity is reported on one form or schedule and

no transactions need to be identified separately (as

discussed in Part IX, later). Also see Identification of

Disallowed Passive Activity Deductions in Pub. 925 for

more information.

Example. You will report all the allowed loss from an

activity listed in Part VII on Schedule E. Use Part VIII to

determine the allowed loss, even if part of the loss is a

current year Schedule E loss and part of it is a prior year

unallowed Schedule E loss.

In Part VIII, enter the name of each activity and the form

or schedule and line number on which the loss is reported.

Identify each CRD from Part VII on a separate line of Part

VIII and add "CRD" after the name of the activity. See the

Example for Part VI.

Column (a). For each activity entered in Part VIII, enter

the net loss plus the prior year unallowed loss for the

activity. Figure this amount by adding the losses in

columns (b) and (c) of Parts IV and V and any prior year

unallowed CRD included in Part I, line 3.

Column (b). For each activity entered in Part VIII, enter

the amount from column (c) of Part VII for the activity.

These are your unallowed losses for 2023. Keep a record

of these amounts so the losses can be used to figure your

PAL next year.

Column (c). Subtract column (b) from column (a). These

amounts are the losses allowed for 2023 under the

passive loss rules. Report the amounts in this column on

the forms and schedules normally used, subject to any

further limitations described in Coordination With Other

Limitations, earlier.

See the forms and schedules listed under How To

Report Allowed Losses, later.

Part IX—Activities With Losses Reported on Two

or More Forms or Schedules

Use Part IX for any activity listed in Part VII that has losses

that are reported on two or more different forms and

schedules or are identified separately on the same form or

schedule (for example, 28% rate and non-28%-rate

capital losses reported on Form 8949). Part IX allocates

the allowed and unallowed loss for the activity and

allocates the allowed loss to the different forms or

schedules (or where identified separately on the same

form or schedule) used to report the losses.

Only losses that would cause a difference in tax liability

if they were reported on a different form or schedule or are

identified separately on the same form or schedule are

kept separate. Those forms, schedules, and parts are the

following.

•

Schedules C, E, and F.

•

Form 8949 (Parts I and II (28% rate losses and

non-28%-rate losses)).

Note. You must generally make a separate entry in Form

8949, Part I or Part II, for each transaction reported. See

the Instructions for Form 8949.

•

Forms 4684 (Section B), 4797 (Parts I and II), and

4835.

Use a separate copy of Part IX for each activity for

which you have losses reported on two or more different

forms or schedules or which are identified separately on

the same form or schedule.

In Part IX, enter the form or schedule and line number

on the dotted line above each line 1a (for example,

Schedule D, line 12, to report a long-term capital loss from

a partnership).

Line 1a, column (a). Enter the net loss plus any prior

year unallowed loss from the activity that’s reported on the

same form or, in the case of Form 4797 and Form 8949,

the same part.

If you have a Form 8949 28% rate loss and a Form

8949 non-28%-rate loss, see Example of Form 8949

transactions, later, before completing Part IX.

Line 1b, column (a). Enter any net income from the

activity that’s reported on the same form or schedule (or

on the same part of the same form or schedule) as the

loss on line 1a, column (a).

Example. You enter a prior year unallowed loss from

Form 4797, Part I, on line 1a. If the activity has a current

year Form 4797, Part I, gain, enter the gain on line 1b,

column (a). If the activity doesn’t have a Form 4797, Part I,

gain, enter -0- on line 1b, column (a).

Column (b). Subtract line 1b, column (a), from line 1a,

column (a), and enter the result in column (b). If line 1b,

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column (a), is more than line 1a, column (a), enter -0- in

column (b).

Column (c). Divide each of the losses entered in column

(b) by the total of column (b) and enter the ratio in column

(c). The total of this column must be 1.00.

Column (d). Multiply the unallowed loss for this activity,

found in Part VII, column (c), by each ratio in column (c) of

Part IX. If -0- is entered in column (b) of Part IX, also enter

-0- for that form or schedule in column (d).

The amount in column (d) is the unallowed loss for

2023. Keep a record of Part IX so you can use the losses

to figure your PAL next year.

Column (e). Subtract the amount in column (d) from the

loss entered on line 1a, column (a). This amount is the

loss allowed for 2023 under the passive loss rules. Report

the amounts in this column on the forms or schedules

normally used, subject to any further limitations described

Coordination With Other Limitations, earlier. The forms

and schedules you use must show the losses from this

column and the income, if any, for that activity from

column (a) of Part IV or Part V.

Example of Form 8949 transactions. The taxpayer

had the following Form 8949 transactions from passive

activities in 2023.

Activity I

A passive activity prior year unallowed long-term

capital loss (a 28% rate loss) of $1,000 and a current year

long-term capital loss (a non-28%-rate loss) of $3,000.

Activity II

A current year collectibles loss (a 28% rate loss) of

$230 and net income of $1,100 from Schedule E (Form

1040).

Part V

Activity I has an overall loss of $4,000 (current year

long-term capital loss of $3,000 and a prior year

unallowed long-term capital loss of $1,000). Activity II has

an overall gain of $870 (current year net income of $1,100

less a current year long-term capital loss of $230). Part III,

line 11, of Form 8582 shows an allowed loss of $1,100.

Since Activity II has an overall gain, the amounts shown

in columns (a) and (b) of Part V for that activity are

reported on the proper forms and schedules and aren’t

shown in any other part.

Part VII

Activity I has an unallowed loss of $3,130 (Part I, line 3,

of Form 8582 ($3,130) less the sum of Part II, line 9, of

Form 8582 (-0-) x 100%).

Part IX

Part IX is used to figure the portion of the unallowed

loss attributable to the 28% rate loss and the portion

attributable to the non-28%-rate loss.

The loss attributable to the 28% rate loss ($1,000) and

the loss attributable to the non-28%-rate loss ($3,000) are

separate entries in Part IX. The ratio of each loss to the

total of the two losses is figured as follows. $1,000/$4,000

= 0.25 and $3,000/$4,000 = 0.75. Each of these ratios is

multiplied by the unallowed loss for Activity I, shown in

column (c) of Part VII ($3,130).

Unallowed losses for Activity I are the following.

•

28% rate loss: 0.25 x $3,130 = $782.50.

•

Non-28%-rate loss: 0.75 x $3,130 = $2,347.50.

Allowed losses for Activity I are the following.

•

28% rate loss: $1,000 − $782.50 = $217.50.

•

Non-28%-rate loss: $3,000 − $2,347.50 = $652.50.

The total loss allowed for Activity I ($870) is entered in

Part II of Form 8949. The allowed 28% rate loss ($217.50)

is entered on the 28% Rate Gain Worksheet (see the

instructions for Schedule D, line 18). Keep a record of the

unallowed 28% rate and non-28%-rate losses to figure the

PAL for next year.

See the forms and schedules listed under How To

Report Allowed Losses next.

How To Report Allowed Losses

Line 3 is income. If Part I, line 3, of Form 8582 shows

net income or zero, all the losses in columns (b) and (c) of

Parts IV and V and any prior year unallowed CRD

included in line 3 are allowed in full under the passive loss

rules. Report the income and losses in columns (a), (b),

and (c) of Parts IV and V and any prior year unallowed

CRD included in line 3 on the forms and schedules

normally used.

Line 11 is the same as the total of Part I, lines 1b, 1c,

2b, 2c, and CRD included in line 3. In this case, all the

losses in columns (b) and (c) of Parts IV and V and any

prior year unallowed CRD included in line 3 are allowed in

full under the passive loss rules. Report the income and

losses in columns (a), (b), and (c) of Parts IV and V on the

forms and schedules normally used.

Columns (a) and (c) of Part VI are the same amount.

In this case, all the losses in columns (b) and (c) of Part IV

and any prior year unallowed CRD included in line 3 are

allowed in full under the passive loss rules. Report the

income and losses in columns (a), (b), and (c) of Part IV

and any prior year unallowed CRD included in line 3 on

the forms and schedules normally used.

Losses allowed in column (c) of Part VIII. The

amounts in column (c) of Part VIII are the losses or

deductions allowed for 2023 for the activities listed in that

part. Report the loss allowed from column (c) of Part VIII

and the income, if any, for that activity from column (a) of

Part IV or V on the form or schedule normally used.

Losses allowed in column (e) of Part IX. The amounts

in column (e) of Part IX are the losses or deductions

allowed for 2023 for the activity listed on that part. Report

the losses allowed from column (e) of Part IX and the

income, if any, for that activity from column (a) of Part IV

or V on the forms or schedules normally used.

Schedules C and F, and Form 4835. Enter on the net

profit or loss line of your Schedule C or F, or line 34c of

Form 4835, the allowed passive loss from the part. To the

left of the entry space, enter “PAL.”

If the net profit or loss line on your form or schedule

shows net profit for the year, reduce the net profit by the

allowed loss from Part VIII or IX and enter the result on the

net profit or loss line.

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Example. Schedule C shows net profit for the year of

$5,000 from a passive activity. The activity also has a

Form 4797 gain of $2,500 and a prior year unallowed

Schedule C loss of $6,000. The loss allowed for 2023 is

$6,000. You enter a net loss of $1,000 on line 31 of

Schedule C (the $5,000 net profit for the year less the

$6,000 loss allowed for the year). To the left of the entry

space, you enter “PAL.”

See Form 4797 and Form 8949, later, if you also had

passive gains and losses from the sale of assets or of an

interest in a passive activity.

Schedule E, Part I. Enter the allowed loss from the part

on line 22 of Schedule E. An activity that has net profit for

the year and prior year unallowed losses will have net

profit on line 21 and the allowed loss on line 22. The

allowed loss on line 22 will include the loss allowed to the

extent of the net profit. Line 24 of Schedule E will show

total profit and line 25 will show total losses allowed (both

passive and nonpassive). Line 26 will show the total net

profit or loss.

Schedule E, Parts II and III. Any item of income shown

on your Schedule K-1 that’s passive income must be

entered as passive income in the appropriate column of

Schedule E, Part II or III. Enter the passive loss allowed

from Part VIII or IX of Form 8582 in the appropriate

column for passive losses. The passive losses allowed

include the loss allowed to the extent of any net income

from the activity. Passive net income or loss reportable in

Schedule E, Part II, includes any self-charged interest

income and deductions treated as passive activity income

and deductions. See

Self-Charged Interest, earlier.

See Form 4797 and Form 8949, later, if you also had

passive gains or losses from the sale of assets or of an

interest in a passive activity.

Form 4684, Section B. Any passive activity gain from

Form 4684 is unchanged. It was used on Form 8582 to

determine allowable PALs. If you don’t have passive

losses on Form 4684, complete Form 4684 and follow the

instructions for that form for where to report the gain.

If you have passive losses on Form 4684, cross

through the amount you first entered on line 31, 32, 38a,

38b, or 39 of that form, and enter the allowed loss from

the part. To the left of the entry space, enter “PAL.”

Form 4797 and Form 8949. If you sold assets from a

passive activity or you sold an interest in your passive

activity, all gains from the activity must be entered on the

appropriate line of Form 4797 or Form 8949. Identify the

gain as “FPA.” Enter any allowed losses for Form 4797 or

Form 8949 on the appropriate line. On Form 8949, include

“PAL” in the description of the property in column (a). On

Form 4797, enter “PAL” to the left of the entry space (for

example, line 2 or line 10).

Entire disposition with an overall loss. If you made an

entire disposition of your interest in a passive activity and

that activity had an overall loss, none of the gains, if any,

or losses were entered on Form 8582. However, all the

gains and losses must be reported on the forms or

schedules normally used. To the left of the entry space,

enter “EDPA.”

Entire disposition with an overall gain.

Gains and

losses from this activity were included on Form 8582 so

that the gains might offset other PALs. Report all the gains

and losses on the forms and schedules normally used,

and to the left of the entry space, enter “EDPA.”

Publicly Traded Partnerships (PTPs)

A PTP is a partnership whose interests are traded on an

established securities market or are readily tradable on a

secondary market (or its substantial equivalent).

An established securities market includes any national

securities exchange and any local exchange registered

under the Securities Exchange Act of 1934 or exempted

from registration because of the limited volume of

transactions. It also includes any over-the-counter market.

A secondary market generally exists if a person stands

ready to make a market in the interest. An interest is

treated as readily tradable if the interest is regularly

quoted by persons, such as brokers or dealers, who are

making a market in the interest.

The substantial equivalent of a secondary market

exists if there’s no identifiable market maker, but holders

of interests have a readily available, regular, and ongoing

opportunity to sell or exchange interests through a public

means of obtaining or providing information on offers to

buy, sell, or exchange interests. Similarly, the substantial

equivalent of a secondary market exists if prospective

buyers and sellers have the opportunity to buy, sell, or

exchange interests in a timeframe and with the regularity

and continuity that the existence of a market maker would

provide.

Special Instructions for PTPs

Section 469(k) provides that the passive activity

limitations must be applied separately to items from each

PTP. PALs from a PTP may generally be used only to

offset income or gain from passive activities of the same

PTP. The special allowance for rental real estate activities

(including CRDs) doesn’t apply to PALs from a PTP.

Passive activity loss rules for partners in PTPs. Don’t

report passive income, gains, or losses from a PTP on

Form 8582. Instead, use the following rules to figure and

report your income, gains, and losses from passive

activities you held through each PTP you owned during

the tax year.

1. Combine any current year income, gains and

losses, and any prior year unallowed losses to see if you

have an overall loss from the PTP. Include only the same

types of income and losses you would include to figure

your net income or loss from a non-PTP passive activity.

See Passive Activity Income and Deductions, earlier.

2. If you have an overall gain, the net gain portion

(total gain minus total losses) is nonpassive income.

It’s important to figure the nonpassive income because

it must be included in modified adjusted gross income to

figure the special allowance for active participation in a

non-PTP rental real estate activity on Form 8582. Also,

you may be able to include the nonpassive income in

investment income when figuring your investment interest

expense deduction. See Form 4952, Investment Interest

Expense Deduction.

Instructions for Form 8582 (2023)

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Report all gains and allowed losses from the activity on

the forms or schedules normally used, and to the left of

each entry space, enter “From PTP.”

Example. You have Schedule E income of $8,000 and

a Form 4797 prior year unallowed loss of $3,500 from the

passive activities of a PTP. You have a $4,500 overall

gain ($8,000 − $3,500) that’s nonpassive income. On

Schedule E, Part II, you report the $4,500 net gain as

nonpassive income in column (k). In column (h), you

report the remaining Schedule E gain of $3,500 ($8,000 −

$4,500) as passive income. On the appropriate line of

Form 4797, you report the prior year unallowed loss of

$3,500. You enter “From PTP” to the left of each entry

space.

3. If you have an overall loss (but didn’t dispose of

your entire interest in the PTP to an unrelated person in a

fully taxable transaction during the year), the losses are

allowed only to the extent of the income, and the excess

loss is carried forward to use in a future year if you have

income to offset it. Report as a passive loss on the

schedule or form you normally use the portion of the loss

equal to the income. Report the income as passive

income on the form or schedule you normally use.

Example. You have a Schedule E loss of $12,000

(current year losses plus prior year unallowed losses) and

Form 4797 gain of $7,200 from the passive activities of a

PTP. You report the $7,200 gain on the appropriate line of

Form 4797. On Schedule E, Part II, you report $7,200 of

the losses as a passive loss in column (g). You carry

forward the unallowed loss of $4,800 ($12,000 − $7,200).

If you have unallowed losses from more than one

activity of the PTP or from the same activity of the PTP

that must be reported on different forms or schedules,

allocate the unallowed losses on a pro rata basis to figure

the amount allowed for each activity or on each form or

schedule.

To allocate and keep a record of the unallowed

losses, use Parts VII, VIII, and IX of Form 8582.

List each activity of the PTP in Part VII. Enter the overall

loss from each activity in column (a). Complete column (b)

of Part VII according to its instructions. Multiply the total

unallowed loss from the PTP by each ratio in column (b)

and enter the result in column (c) of Part VII.

Next, complete Part VIII for each activity listed in Part

VII if all the loss from that activity is reported on one form

or schedule. Use Part IX instead of Part VIII for each

activity with losses reported on two or more different

forms or schedules (or are identified separately on the

same form or schedule). Enter the net loss plus any prior

year unallowed losses in column (a) of Part VIII (or line 1a,

column (a), of Part IX, if applicable). The losses in column

TIP

losses to report on your forms or schedules. Report these

losses and any income from the PTP on the forms and

schedules normally used.

4. If you have an overall loss and you disposed of your

entire interest in the PTP to an unrelated person in a fully

taxable transaction during the year, your losses (including

prior year unallowed losses) allocable to the activity for

the year aren’t limited by the passive loss rules. A fully

taxable transaction is one in which you recognize all your

realized gain or loss. Report the income and losses on the

forms and schedules normally used.

For rules on the disposition of an entire interest

reported using the installment method, see Disposition of

an Entire Interest, earlier.

Paperwork Reduction Act Notice. We ask for the

information on this form to carry out the Internal Revenue

laws of the United States. You are required to give us the

information. We need it to ensure that you are complying

with these laws and to allow us to figure and collect the

right amount of tax.

You are not required to provide the information

requested on a form that is subject to the Paperwork

Reduction Act unless the form displays a valid OMB

control number. Books or records relating to a form or its

instructions must be retained as long as their contents

may become material in the administration of any Internal

Revenue law. Generally, tax returns and return

information are confidential, as required by section 6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated

burden for individual taxpayers filing this form is approved

under OMB control number 1545-0074 and is included in

the estimates shown in the instructions for their individual

income tax return. The estimated burden for all other

taxpayers who file this form is shown below.

Recordkeeping.................. 26 min.

Learning about the law or the form .. 22 min.

Preparing the form ............... 1 hr., 52 min.

Copying, assembling, and sending

the form to the IRS ............... 48 min.

If you have comments concerning the accuracy of

these time estimates or suggestions for making this form

simpler, we would be happy to hear from you. See the

instructions for the tax return with which this form is filed.

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Instructions for Form 8582 (2023)