A real property trade or business is anysignificant and bona fide sense. Such man-
Any transaction resulting in a taxreal property development, redevelopment,agement decisions include:credit of more than $250,000, if you heldconstruction, reconstruction, acquisition,the asset generating the credit for 45 days
Approving new tenants,conversion, rental, operation, management,or less.
Deciding on rental terms,leasing, or brokerage trade or business.See the Instructions for Form 8886 for
Approving capital or repair expendi-Services you performed as an employee aremore details and exceptions.tures, andnot treated as performed in a real property
Other similar decisions.trade or business unless you owned more
Tax Shelter Registration
than 5% of the stock (or more than 5% of You are not considered to actively par-
the capital or profits interest) in the em-ticipate if, at any time during the tax year,Complete and attach Form 8271 if you areployer.your interest (including your spouse’s in-claiming or reporting any income, deduc-terest) in the activity was less than 10% byIf you were a real estate professional fortion, loss, credit, or other tax benefit, fromvalue of all interests in the activity.2004, complete line 43 on page 2 of Sched-an interest purchased or otherwise acquiredule E.
Modified adjusted gross income.
This isin a tax shelter required to be registeredyour adjusted gross income from Formwith the IRS.
The rental of your home1040, line 36, without taking into account:that you also used for personal purposes isForm 8271 is used to report the name,not a passive activity. See the instructions
Any passive activity loss,tax shelter registration number, and identi-for line 2 on page E-3.fying number of the tax shelter. There is a
Rental real estate losses allowed$250 penalty if you do not report the regis-under the exception for real estate profes-A working interest in an oil or gas welltration number of the tax shelter on your taxsionals (explained on page E-1),that you held directly or through an entityreturn.that did not limit your liability is not a
Taxable social security or tier 1 rail-passive activity even if you did not materi-road retirement benefits,ally participate.
Deductible contributions to a tradi-tional IRA or certain other qualified retire-Royalty income not derived in the ordi-
ment plans under section 219,nary course of a trade or business reportedon Schedule E generally is not considered
The student loan interest deduction,income from a passive activity.
The tuition and fees deduction,
Filers of Form 1041
For more details on passive activities,
The deduction for one-half of self-em-If you are a fiduciary filing Schedule E withsee the Instructions for Form 8582 and Pub.ployment tax, andForm 1041, enter the estate’s or trust’s em-925.
Any excluded amounts under anployer identification number (EIN) in theemployer’s adoption assistance program.
Exception for Certain Rental Real
space for “Your social security number.”
However, if you file Form 8815, includein your modified adjusted gross income theIf you meet all three of the following condi-savings bond interest excluded on line 14tions, your rental real estate losses are notof that form.limited by the passive activity loss rules. If
you do not meet all three of these condi-
tions, see the Instructions for Form 8582 to
Income or Loss From
find out if you must complete and attachForm 8582 to figure any losses allowed.Use Form 8886 to disclose information for
Rental Real Estate and
each reportable transaction in which you1.Rental real estate activities are your
participated. Form 8886 must be filed foronly passive activities.each tax year that your federal income taxUse Part I to report:2.You do not have any prior year unal-liability is affected by your participation in
Income and expenses from rental reallowed losses from any passive activities.the transaction. You may have to pay aestate (including personal property leased3.All of the following apply if you havepenalty if you are required to file Formwith real estate), andan overall net loss from these activities:8886 but do not do so. The following are
Royalty income and expenses.reportable transactions.a.You actively participated (defined be-See the instructions for lines 3 and 4 tolow) in all of the rental real estate activities;
Any transaction that is the same as ordetermine if you should report your rentalsubstantially similar to tax avoidance trans-b.If married filing separately, you livedreal estate and royalty income on Scheduleactions identified by the IRS.apart from your spouse all year;C, Schedule C-EZ, or Form 4835 instead of
Any transaction offered under condi-c.Your overall net loss from these ac-Schedule E.tions of confidentiality for which you paidtivities is $25,000 or less ($12,500 or less if If you own a part interest in a rental realan advisor a minimum fee.married filing separately);estate property, report only your part of the
Any transaction for which you haved.You have no current or prior yearincome and expenses on Schedule E.contractual protection against disallowanceunallowed credits from passive activities;of the tax benefits.Complete lines 1 and 2 for each rentalandreal estate property. Leave these lines blank
Any transaction resulting in a loss of e.Your modified adjusted gross incomefor each royalty property.at least $2 million in any single tax year or(defined later) is $100,000 or less ($50,000$4 million in any combination of tax years.or less if married filing separately).If you have more than three rental real(At least $50,000 for a single tax year if theestate or royalty properties, complete andloss arose from a foreign currency transac-
You can meet the ac-attach as many Schedules E as you need totion defined in section 988(c)(1), whethertive participation requirement without reg-list them. But fill in the “Totals” column onor not the loss flows through from an Sular, continuous, and substantialonly one Schedule E. The figures in thecorporation or partnership.)involvement in real estate activities. But“Totals” column on that Schedule E shouldyou must have participated in making man-
Any transaction resulting in abe the combined totals of all your Sched-agement decisions or arranging for othersbook-tax difference of more than $10 mil-ules E. If you are also using page 2 of to provide services (such as repairs) in alion on a gross basis.Schedule E, use the same Schedule E on