Specific Instructions

Current Year Credits

Convert any current year qualified expenditures into credits before beginning Worksheet 1, 2, 3, or 4. If the credits are from more than one activity or are of more than one type, separate the credits by activity and by type before making entries in the worksheets.

For tax years beginning after 2011, line numbers on the referenced forms may change. See the form instructions for the referenced forms on how to report the current year passive activity credit.

Example.

You have a low-income housing credit from one activity and a research credit from a different activity. Enter the low-income housing credit in column (a) of Worksheet 2 or 3 and make a separate entry for the research credit in column (a) of Worksheet 4.

Form 3800, General Business Credit.   Enter the credits from Form 3800, line 2, line 23, and line 32, in column (a) of Worksheet 1, 2, 3, or 4.

Form 8834, Qualified Plug-In Electric and Electric Vehicle Credit.   See the Instructions for Form 8834 for the amount to enter in column (a) of Worksheet 1 or 4.

Prior Year Unallowed Credits

To figure this year's PAC, you must take into account any credits from passive activities disallowed for prior years and carried forward to this year.

If you had only one type of prior year unallowed credit from a single passive activity, figure your prior year unallowed credit by subtracting line 37 of your prior year Form 8582-CR from line 5 of your prior year Form 8582-CR.

Otherwise, your prior year unallowed credits are the amounts shown in column (b) of Worksheet 9 in the prior year Instructions for Form 8582-CR. Enter the prior year unallowed credits in column (b) of Worksheet 1, 2, 3, or 4, whichever applies.

You must adjust a prior year unallowed credit if you had to recapture any part of the credit (for example, due to the early disposition of property) or transfer the credit to a bankruptcy estate.

Part I—Passive Activity Credits

Use Part I to combine your credits from passive activities to determine if you have a PAC for the current year.

If your credits from all passive activities exceed the tax attributable to net passive income, you have a PAC for the current year. Generally, you have net passive income if line 4 of Form 8582 shows income. For more information, see the instructions for Form 8582-CR, line 6.

Lines 1a through 1c.   Individuals and qualifying estates that actively participated in rental real estate activities must include the credits (other than rehabilitation credits or low-income housing credits) from these activities on lines 1a through 1c. Use Worksheet 1 to figure the amounts to enter on lines 1a and 1b.

  See Special Allowance for Rental Real Estate Activities, earlier.

  
If you are married filing a separate return and lived with your spouse at any time during the year, even if you actively participated in the rental real estate activity, include the credits in Worksheet 4, not in Worksheet 1.

Note.

You may take credits that arose in a prior tax year (other than low-income housing and rehabilitation credits) under the special allowance only if you actively participated in the rental real estate activity for both that prior year and this year. If you did not actively participate for both years, include the credits in Worksheet 4, not in Worksheet 1.

Lines 2a through 2c.   Individuals (including limited partners) and qualifying estates who had rehabilitation credits from rental real estate activities or low-income housing credits for property placed in service before 1990 must include the credits from those activities on lines 2a through 2c. Use Worksheet 2 to figure the amounts to enter on lines 2a and 2b.

  If you have low-income housing credits for property placed in service after 1989, include those credits in Worksheet 3 instead of Worksheet 2. If you held an indirect interest in the property through a partnership, S corporation, or other pass-through entity, use Worksheet 3 only if you also acquired your interest in the pass-through entity after 1989.

Lines 3a through 3c.   Individuals (including limited partners) and qualifying estates who had low-income housing credits from rental real estate activities for property placed in service after 1989 must include those credits on lines 3a through 3c. If you held an indirect interest in the property through a partnership, S corporation, or other pass-through entity, use lines 3a through 3c only if you also acquired your interest in the pass-through entity after 1989. Use Worksheet 3 to figure the amounts to enter on lines 3a and 3b.

  
Include the credits in Worksheet 4, but not in Worksheet 2 or 3, if you are married filing a separate return and lived with your spouse at any time during the year.

Lines 4a through 4c.   Individuals must include on lines 4a through 4c credits from passive activities that were not entered on Worksheets 1, 2, or 3. Trusts must include credits from all passive activities in Worksheet 4. Use Worksheet 4 to figure the amounts to enter on lines 4a and 4b.

Line 6.   If Form 8582, line 4, shows net income or you did not complete Form 8582 because you had net passive income, you must figure the tax on the net passive income. If you have an overall loss on an entire disposition of your interest in a passive activity, reduce net passive income, if any, on Form 8582, line 4, to the extent of the loss (but not below zero) and use only the remaining net passive income in the computation below. If you had a net passive activity loss, enter -0- on line 6 and go to line 7.

  Figure the tax on net passive income as follows.
A. Taxable income including net  
passive income
   
B. Tax on line A*  
C. Taxable income without net passive income    
D. Tax on line C*  
E. Subtract line D from line B  
and enter the result on  
Form 8582-CR, line 6
 
* For Form 1040, use the Tax Table, Tax Computation Worksheet, or other appropriate method you used to figure your tax. For Form 1041, use the Tax Rate Schedule, Qualified Dividends Tax Worksheet, or Schedule D, whichever applies.

Note.

When using taxable income in the above computation, it is not necessary to refigure items that are based on a percentage of adjusted gross income.

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Worksheet 1 and 2

Line 7.   If line 7 is zero because the tax on the net passive income on line 6 is greater than your credits from passive activities on line 5, all your credits from passive activities are allowed. In this case, enter the amount from line 5 on line 37 and report the credits on the forms normally used. Do not complete Worksheets 5 through 9.

Part II—Special Allowance for Rental Real Estate Activities With Active Participation

Married persons filing separate returns who lived with their spouses at any time during the year are not eligible to complete Part II.

Use Part II to figure the credit allowed if you have any credits from rental real estate activities in which you actively participated (other than rehabilitation credits and low-income housing credits). See Rental Activities, earlier, for details.

Line 9.   Married persons filing separate returns who lived apart from their spouses at all times during the year must enter $75,000 on line 9 instead of $150,000. Married persons filing separate returns who lived with their spouses at any time during the year are not eligible for the special allowance. They must enter -0- on line 16 and go to line 17.

Line 10.   To figure modified adjusted gross income, combine all the amounts used to figure adjusted gross income except do not take into account:
  • Any passive activity loss as defined in section 469(d)(1),

  • 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 domestic production activities deduction,

  • The deduction allowed for 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 tuition and fees deduction.

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Worksheet 3

  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 is 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. For information on recharacterization of income, see Pub. 925 or Temporary Regulations section 1.469-2T(f).

  When figuring modified adjusted gross income, any overall loss from an entire disposition of an interest in a passive activity is taken into account as a nonpassive loss if you do not have any net passive income after combining net income and losses from all other passive activities (that is, Form 8582, line 4 is a loss or zero). If you do have net passive income when you combine the net losses and net income from all other passive activities, the overall loss from the disposition is taken into account as a nonpassive loss only to the extent that it exceeds that net passive income.

Line 12.   Do not enter more than $12,500 on line 12 if you are married filing a separate return and you and your spouse lived apart at all times during the year. Married persons filing separate returns who lived with their spouses at any time during the year are not eligible for the special allowance. They must enter -0- on line 16 and go to line 17.

Line 15.   Figure the tax attributable to the amount on line 14 as follows.
A. Taxable income    
B. Tax on line A*  
C. Enter amount from Form 8582-CR, line 14    
D. Subtract line C from line A    
E. Tax on line D*  
F. Subtract line E from line B  
and enter the result on  
Form 8582-CR, line 15
 
 
* For Form 1040, use the Tax Table, Tax Computation Worksheet, or other appropriate method you used to figure your tax. For Form 1041, use the Tax Rate Schedule, Qualified Dividends Tax Worksheet, or Schedule D, whichever applies.

Note.

When using taxable income in the above computation, it is not necessary to refigure items that are based on a percentage of adjusted gross income.

Part III—Special Allowance for Rehabilitation Credits From Rental Real Estate Activities and Low-Income Housing Credits for Property Placed in Service Before 1990 (or From Pass-Through Interests Acquired Before 1990)

Married persons filing separate returns who lived with their spouses at any time during the year are not eligible to complete Part III.

Use Part III to figure the credit allowed if you have any rehabilitation credits or low-income housing credits for property placed in service before 1990. Also use this part if your low-income housing credit is from a partnership, S corporation, or other pass-through entity in which you acquired your interest before 1990, regardless of the date the property was placed in service.

Line 21.   Married persons filing separate returns who lived apart from their spouses at all times during the year must enter $125,000 on line 21, instead of $250,000.

  Skip lines 21 through 26 if you completed Part II of this form and your modified adjusted gross income on line 10 was $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse for the entire year). Instead, enter the amount from line 15 on line 27.

Line 24.   Do not enter more than $12,500 on line 24 if you are married filing a separate return and lived apart from your spouse for the entire year.

Line 27.   Figure the tax attributable to the amount on line 26 as follows.
A. Taxable income    
B. Tax on line A*  
C. Enter amount from Form 8582-CR, line 26    
D. Subtract line C from line A    
E. Tax on line D*  
F. Subtract line E from line B and enter the result on Form 8582-CR, line 27  
*For Form 1040, use the Tax Table, Tax Computation Worksheet, or other appropriate method you used to figure your tax. For Form 1041, use the Tax Rate Schedule, Qualified Dividends Tax Worksheet, or Schedule D, whichever applies.

Note.

When using taxable income in the above computation, it is not necessary to refigure items that are based on a percentage of adjusted gross income.

Part IV—Special Allowance for Low-Income Housing Credits for Property Placed in Service After 1989

Married persons filing separate returns who lived with their spouses at any time during the year are not eligible to complete Part IV.

Use Part IV to figure the credit allowed if you have any low-income housing credits for property placed in service after 1989. If you held an indirect interest in the property through a partnership, S corporation, or other pass-through entity, use Part IV only if your interest in the pass-through entity was also acquired after 1989.

Line 35.   Figure the tax attributable to the remaining special allowance as follows.
A. Taxable income    
B. Tax on line A*  
C. Enter $25,000 ($12,500 if married filing separate return and you and your spouse lived apart at all times during the year)      
D. Enter amount, if  
any, from Form 
8582, line 10
     
E. Enter the amount,  
if any, from Form 
8582, line 14
     
F. Subtract lines D and E  
from line C
   
G. Subtract line F from line A    
H. Tax on line G*  
I. Subtract line H from line B  
J. Add lines 16 and 30 of  
Form 8582-CR and enter the total
 
K. Tax attributable to the remaining special allowance. Subtract line J  
from line I. Enter the result on  
Form 8582-CR, line 35
 
*For Form 1040, use the Tax Table, Tax Computation Worksheet, or other appropriate method you used to figure your tax. For Form 1041, use the Tax Rate Schedule, Qualified Dividends Tax Worksheet, or Schedule D, whichever applies.

Note.

When using taxable income in the above computation, it is not necessary to refigure items that are based on a percentage of adjusted gross income.

  

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Worksheets 5 and 6

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Worksheets 7, 8, and 9

Part V—Passive Activity Credit Allowed

Use Part V to figure the PAC (as determined in Part I) that is allowed for the current year for all passive activities.

Line 37.   If you have only one type of credit, the amount on line 37 is the credit allowed for the year. Enter this amount on the form where it is normally reported. See Reporting Allowed Credits on Your Tax Return, later. Your unallowed credit is line 5 minus line 37.

  Use Worksheets 5 through 9, whichever apply, to allocate the allowed and unallowed credits if you have credits from more than one activity. Also use the worksheets if you have more than one type of credit.

  Keep a record of each unallowed credit and the activity to which it belongs so you may claim the credit if it becomes allowable in a future year.

Reporting Allowed Credits on Your Tax Return

For tax years beginning after 2011, line numbers on the referenced forms may change. See the form instructions for the referenced forms on how to report the passive activity credit allowed.

Form 3800.   Enter on Form 3800, line 3, 24, and 33, whichever apply, the passive activity general business credits allowed.

Form 8834.   See the Instructions for Form 8834 for instructions on how to report the passive activity credit allowed.

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 is no identifiable market maker, but holders of interests have a readily available, regular, and ongoing opportunity to sell or exchange their 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.

Credits From PTPs

A credit from a passive activity held through a PTP is allowed to the extent of the tax attributable to net passive income from that partnership. In addition, rehabilitation credits and low-income housing credits from rental real estate activities held through PTPs are allowed to the extent of any special allowance that remains after taking into account losses and credits from rental real estate activities not owned through PTPs. See Special Allowance for Rental Real Estate Activities, earlier.

Do not enter credits from PTPs on the worksheets or on Form 8582-CR. Instead, use the following steps to figure the allowed and unallowed credits from passive activities held through PTPs.

Computation of Allowed Passive Activity Credits From PTPs

Complete Steps 1 and 2 only if you have net passive income from a PTP with passive activity credits (including prior year unallowed credits).

Step 1.   Figure the tax attributable to net passive income from each PTP with passive activity credits (including prior year unallowed credits) by following the steps shown in the worksheet in the line 6 instructions. Complete a separate tax computation for each PTP with net passive income.

Step 2.   Passive activity credits from each PTP are allowed to the extent of the tax attributable to net passive income from the same PTP. Credits in excess of the tax attributable to net passive income may be allowed under one or more steps below.

  Complete Steps 3 through 5 only if your passive activity credits (including prior year unallowed credits) include rehabilitation credits from rental real estate activities from PTPs, low-income housing credits for property placed in service before 1990 from PTPs, or low-income housing credits from PTPs in which you acquired your interest before 1990 (regardless of the date placed in service).

Step 3.   Reduce rehabilitation credits from rental real estate activities from each PTP, low-income housing credits for property placed in service before 1990 from each PTP, and any low-income housing credits (including prior year unallowed credits) from each PTP in which you acquired your interest before 1990 (regardless of the date placed in service) to the extent of the tax, which was figured in Step 1, attributable to net passive income from that PTP.

Step 4.   Before beginning this step, complete Form 8582-CR if you have any passive credits that are not from PTPs. Subtract the total of lines 16, 30, and 36, if any, of Form 8582-CR, from the amount on line 27 of Form 8582-CR, to figure the tax attributable to the special allowance available for the credits in Step 3.

  If your only passive credits are from PTPs, complete lines 21 through 27 of Form 8582-CR as a worksheet. The amount on line 27 is the tax attributable to the special allowance available for the credits in Step 3.

Step 5.   Rehabilitation credits from rental real estate activities of PTPs, low-income housing credits for property placed in service before 1990 by PTPs, and low-income housing credits from PTPs in which you acquired your interest before 1990 (regardless of the date placed in service) allowed under the special allowance are the smaller of the total credits from Step 3 or the amount figured in Step 4. If Step 4 is smaller than Step 3, allocate the amount in Step 4 pro rata to the credits from each PTP in Step 3.

  Complete Steps 6 through 8 only if you have low-income housing credits (including prior year unallowed credits) for property placed in service after 1989 from a PTP in which you acquired your interest after 1989.

Step 6.   Reduce low-income housing credits (including prior year unallowed credits) for property placed in service after 1989 from each PTP in which you also acquired your interest after 1989 to the extent of the tax attributable to net passive income from that PTP, which was figured in Step 1.

Step 7.   Before beginning this step, complete Form 8582-CR if you have any passive credits that are not from PTPs. Subtract the sum of the credits allowed in Step 5 above and Form 8582-CR, line 36, from the amount on Form 8582-CR, line 35, to figure the tax attributable to the special allowance available for the credits in Step 6.

  If your only passive credits are from PTPs, complete the steps shown in the worksheet in the line 35 instructions. Subtract the credits allowed in Step 5 above from the tax figured on line K of that worksheet. The result is the tax attributable to the special allowance available for the credits in Step 6.

Step 8.   Low-income housing credits allowed under the special allowance for property placed in service after 1989 from a PTP in which you also acquired your interest after 1989 are the smaller of the total credits from Step 6 or the amount figured in Step 7. If Step 7 is smaller than Step 6, allocate the amount in Step 7 pro rata to the credits from each PTP in Step 6.

Step 9.   Add the credits from Steps 2, 5, and 8. These are the total credits allowed from passive activities of PTPs.

Step 10.   Figure the allowed and unallowed credits from each PTP. Report the allowed credits on the forms normally used. Keep a record of the unallowed credits to be carried forward to next year.

Part VI—Election To Increase Basis of Credit Property

Complete Part VI if you disposed of your entire interest in a passive activity and elect to increase the basis of the credit property used in the activity by the unallowed credit that reduced the basis of the property.

Line 38.   Check the box if you elect to increase the basis of credit property used in a passive activity by the unallowed credit that reduced the property's basis. The election is available for a fully taxable disposition of an entire interest in an activity for which a basis adjustment was made as a result of placing in service property for which a credit was taken. You may elect to increase the basis of the credit property immediately before the disposition (by an amount no greater than the amount of the original basis reduction) to the extent that the credit had not been allowed previously because of the passive activity credit limitations. The amount of the unallowed credit that may be applied against tax is reduced by the amount of the basis adjustment.

  No basis adjustment may be elected on a partial disposition of your interest in a passive activity or if the disposition is not fully taxable. The amount of any unallowed credit, however, remains available to offset the tax attributable to net passive income.


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