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Department of the Treasury

Internal Revenue Service

Instructions for Form 8810
Corporate Passive Activity Loss and Credit Limitations
Section references are to the Internal Revenue Code unless otherwise noted.

Paperwork Reduction Act Purpose of Form Definitions
Notice Form 8810 is used by closely held Except as otherwise indicated, the
We ask for the information on this form corporations and personal service following terms are defined as shown
to carry out the Internal Revenue laws of corporations to figure the amount of any below.
the United States. You are required to passive activity loss or credit for the Net income means the excess of
give us the information. We need it to current tax year and the amount of current year income over current year
ensure that you are complying with losses and credits from passive activities deductions from the activity. This
these laws and to allow us to figure and allowed on the corporation’s tax return. includes any current year gains or losses
collect the right amount of tax. A personal service corporation has a from the disposition of assets or an
The time needed to complete and file passive activity loss for the year if the interest in the activity.
this form will vary depending on total losses (including prior year Net loss means the excess of current
individual circumstances. The estimated unallowed losses) from all its passive year deductions over current year
average time is: activities exceed the total income from income from the activity. This includes
all of its passive activities. A closely held any current year gains or losses from the
Recordkeeping 26 hr., 19 min. corporation has a passive activity loss disposition of assets or an interest in the
Learning about the law for the year if the total losses (including activity.
or the form 5 hr., 22 min. prior year unallowed losses) from all its Overall gain means the excess of the
passive activities exceed the sum of the “net income” from the activity over the
Preparing and sending total income from all its passive activities
the form to the IRS 6 hr., 2 min. prior year unallowed losses from the
and its net active income.
If you have comments concerning the activity.
A personal service corporation has a
accuracy of these time estimates or Overall loss means the excess of the
passive activity credit for the year if its
suggestions for making this form prior year unallowed losses from the
credits from passive activities (including
simpler, we would be happy to hear from activity over the “net income” from the
prior year unallowed credits) exceed the activity or the prior year unallowed
you. You can write to both the IRS and tax attributable to net passive income. A
the Office of Management and Budget losses from the activity plus the “net
closely held corporation has a passive
at the addresses listed in the loss” from the activity.
activity credit for the year if its credits
instructions for the tax return with which from passive activities (including prior Prior year unallowed losses means the
this form is filed. year unallowed credits) exceed the sum deductions and losses from an activity
of the tax attributable to net passive that were disallowed under the passive
activity loss limitations in a prior year
General Instructions income and the tax attributable to net
and carried forward to this tax year
active income.
under section 469(b). See Regulations
Changes To Note Generally, passive activities include section 1.469-1(f)(4).
trade or business activities in which the
● For tax years beginning after 1993, a corporation did not materially participate
closely held corporation that derives for the tax year, and rental activities Coordination With
more than 50% of its gross receipts regardless of its participation. Other Limitations
from real property trades or businesses
in which it materially participates is not For more information, get Pub. 925, Losses from passive activities generally
subject to the passive activity limitations Passive Activity and At-Risk Rules. are subject to other applicable
on losses or credits from rental real limitations (e.g., basis and at-risk
estate activities in which it materially Who Must File limitations) before they are subject to the
participates. For details, see item 2 Personal service corporations and passive loss limitations. Once a loss
under Activities That Are Not Passive closely held corporations that have becomes allowable under these other
Activities on page 2. losses or credits from passive activities limitations, the corporation must
● Final regulations defining the term must file Form 8810. A “personal service determine whether the loss is limited
“activity” have been issued. See corporation” is a corporation (other than under the passive loss rules. See Form
Grouping the Corporation’s Activities an S corporation) that is a personal 6198, At-Risk Limitations, for details on
on page 4 for details. service corporation for the tax year (as the at-risk rules. Capital losses that are
allowable under the passive loss rules,
● New Part III, Election To Increase defined in Temporary Regulations
however, may be limited under section
Basis of Credit Property, must be section 1.441-4T(d)). A “closely held
corporation” is a corporation (other than 1211(a). Similarly, percentage depletion
completed if the corporation disposed of deductions that are allowable under the
its entire interest in a passive activity (or an S corporation) that meets the stock
ownership requirements of section passive loss rules may be limited under
former passive activity) and it elects to section 613A(d).
increase the basis of credit property 542(a)(2) (as modified by section
used in the activity by the unallowed 465(a)(3)) for the tax year and is not a
credit that reduced the property’s basis. personal service corporation for the tax

Cat. No. 10357E
Special Rules for 4. An activity of trading personal consideration. Facts and circumstances
property for the account of owners of include the frequency of the services,
Consolidated Group interests in the activity. See Temporary the type and amount of labor required to
The passive activity loss and passive Regulations section 1.469-1T(e)(6). perform the services, and the value of
activity credit of an affiliated group of Generally, income, losses, and credits the services relative to the amount
corporations filing a consolidated return from these activities should not be charged for the use of the property.
for the tax year (a consolidated group) entered on Form 8810. However, losses Significant personal services do not
are determined by taking into account and credits from these activities may be include excluded services. See
the following items of each member of subject to limitations other than the Temporary Regulations section
the group. passive loss and credit rules. 1.469-1T(e)(3)(iv)(B).
● Passive activity gross income and 3. Extraordinary personal services
deductions; and Rental Activities were provided in connection with making
● Gain or loss on dispositions; and the rental property available for
A rental activity is a passive activity even
● Net active income (for a consolidated customer use.
if the corporation materially participated
group treated as a closely held in the activity (other than a rental real Services provided in connection with
corporation); and estate activity in which the corporation making rental property available for
● Credits from passive activities. materially participated, if the corporation customer use are extraordinary
was a closely held corporation that personal services only if the services
derived more than 50% of its gross are performed by individuals and the
Activities That Are Not customers’ use of the rental property is
receipts from real property trades or
Passive Activities businesses in which it materially incidental to their receipt of the services.
The following are not passive activities: participated). 4. The rental of the property is
1. Trade or business activities in which An activity is a rental activity if incidental to a nonrental activity.
the corporation materially participated tangible property (real or personal) is The rental of property is incidental to
for the tax year. used by customers or held for use by an activity of holding property for
2. For tax years beginning after 1993, customers, and the gross income (or investment if the main purpose for
any rental real estate activity in which expected gross income) from the activity holding the property is to realize a gain
the corporation materially participated if represents amounts paid (or to be paid) from the appreciation of the property
the corporation was a closely held mainly for the use of the property, and the gross rental income is less than
corporation that derived more than 50% regardless of whether the use is under a 2% of the smaller of the unadjusted
of its gross receipts from real property lease, a service contract, or some other basis of the property or the fair market
trades or businesses in which it arrangement that is not called a lease. value of the property.
materially participated. However, if the corporation meets any Unadjusted basis means the cost of
For purposes of this rule, each interest one of the six exceptions listed below, the property without regard to
is a separate activity, unless the the rental of the property is not treated depreciation deductions or any other
corporation elects to treat all interests in as a rental activity. See Reporting adjustment described in section 1016
rental real estate as one activity. Income, Deductions, Losses, and that reduces basis.
Credits From the Activities on page 3 if The rental of property is incidental to a
A real property trade or business is
the corporation meets any of the trade or business activity if:
any real property development,
exceptions. a. The corporation owned an interest
redevelopment, construction,
reconstruction, acquisition, conversion, Exceptions in the trade or business activity during
rental, operation, management, leasing, the year;
or brokerage trade or business. An activity is not a rental activity if:
b. The rental property was mainly
Note: If an activity qualifies for the 1. The average period of customer use used in the trade or business activity
exception descr ibed above in 1994, but of the rental property is 7 days or less. during the tax year or during at least 2
has a pr ior year unallowed loss, the prior Figure the average period of of the 5 preceding tax years; and
year unallowed loss is treated as a loss customer use for a class of property by c. The gross rental income from the
from a for mer passive activity. See dividing the total number of days in all property is less than 2% of the smaller
Former Passive Activities on page 5. rental periods by the number of rentals of the unadjusted basis of the property
3. An interest in an oil or gas well during the tax year. If the activity or the fair market value of the property.
drilled or operated under a working involves renting more than one class of
Lodging provided for the employer’s
interest if at any time during the tax year property, multiply the average period of
convenience to an employee or the
the corporation held the working interest customer use of each class by the ratio
employee’s spouse or dependents is
directly or through an entity that did not of the gross rental income from that
incidental to the activity or activities in
limit the corporation’s liability (such as a class to the activity’s total gross rental
which the employee performs services.
general partner interest in a partnership). income. The activity’s average period of
customer use equals the sum of these 5. The corporation customarily makes
This exception applies regardless of the rental property available during
whether the corporation materially class-by-class average periods weighted
by gross income. See Regulations defined business hours for nonexclusive
participated in the activity for the tax use by various customers.
year. section 1.469-1(e)(3)(iii).
2. The average period of customer use 6. The corporation provides property
If, however, the corporation’s liability for use in a nonrental activity of a
was not unlimited for the entire year (defined above) of the rental property is
30 days or less and significant personal partnership or joint venture in its
(e.g., the corporation converted its capacity as an owner of an interest in
general partner interest to a limited services were provided in connection
with making the rental property available such partnership or joint venture.
partner interest during the year), some of
the corporation’s income and losses for customer use. For example, if a partner contributes
from the working interest may be treated Significant personal services include the use of property to a partnership,
as passive activity gross income and only services performed by individuals. none of the partner’s distributive share
passive activity deductions. See In determining whether personal of partnership income is income from a
Temporary Regulations section services are significant, all the relevant rental activity unless the partnership is
1.469-1T(e)(4)(ii). facts and circumstances are taken into engaged in a rental activity. In addition,
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a partner’s gross income attributable to chose to deduct rather than capitalize three full-time nonowner employees
a guaranteed payment under section them). were directly related to the activity; and
707(c) is not income from a rental 3. The deductions attributable to the
activity. The determination of whether Reporting Income, Deductions, activity and allowed solely under
the property used in the activity is Losses, and Credits From the sections 162 and 404 exceed 15% of
provided in the partner’s capacity as an Activities the gross income from the activity for
owner of an interest in the partnership is Trade or business activities with the tax year.
made on the basis of all the facts and material participation.—If the Participation, for purposes of the
circumstances. corporation materially participated in a material participation tests listed below,
Reporting Income, Deductions, trade or business activity, the activity is generally includes any work the
Losses, and Credits From the not a passive activity. Report the individual did (without regard to the
income, deductions, losses, and credits capacity in which the individual did it) in
Activities from the activity on the form or schedule connection with an activity in which the
If the corporation meets any of the six normally used. corporation owned an interest at the
exceptions listed above, the Trade or business activities without time the individual did the work. Work is
corporation’s rental of the property is not material participation.—In general, use not treated as participation, however, if
a rental activity. The corporation then Worksheets 1 and 2 on page 7 to the work is not work that an owner of
must determine whether the rental of the determine the amount to enter in that type of activity would customarily
property is a trade or business activity Part I of Form 8810 for each trade or do, and if one of the individual’s main
and, if so, whether the corporation business activity in which the reasons for doing the work is to avoid
materially participated or significantly corporation did not materially the disallowance of losses or credits
participated in the activity for the tax participate. If, however, the corporation from the activity under the passive loss
year. (See Trade or Business Activities held the activity through a PTP or the and credit rules.
and Material or Significant activity is a significant participation Work the individual did as an investor
Participation below.) To report income, activity, special rules apply. See Publicly in an activity is not treated as
deductions, losses, or credits from a Traded Partnerships (PTPs) on page participation unless the individual was
trade or business activity in which the 10. See Pub. 925 for how to report directly involved in the day-to-day
corporation did not materially income or losses from significant management or operations of the
participate, see Trade or business participation passive activities. activity. Work done as an investor
activities without material In general, if the corporation has includes:
participation below. credits from passive activities, use 1. Studying and reviewing financial
If the corporation meets any of the six Worksheet 5 on page 11 to figure the statements or reports on operations of
exceptions listed above and the activity amount to enter in Part II of Form 8810. the activity.
is a trade or business activity in which However, if the corporation held the 2. Preparing or compiling summaries
the corporation materially participated, activity through a PTP, special rules or analyses of the finances or operations
report any income, deduction, loss, or apply. See Credits From PTPs on page of the activity for the individual’s own
credit from the activity on the forms or 12 for how to report credits from these use.
schedules normally used. activities.
3. Monitoring the finances or
If the corporation did not meet any of
operations of the activity in a
the six exceptions, the rental activity is Material or Significant nonmanagerial capacity.
generally a passive activity. Special rules
apply if the corporation conducted the Participation If the individual is married for the tax
rental activity through a publicly traded In general.—Personal service year, the individual’s participation in an
partnership (PTP) or if any of the rules corporations and closely held activity includes any participation in the
described in Recharacterization of corporations materially or significantly activity during the tax year by that
Passive Income on page 5 apply. See participate in an activity if one or more individual’s spouse, whether or not the
Publicly Traded Partnerships (PTPs) on individuals, each of whom would spouse owned any interest in the activity
page 10. materially or significantly participate in and whether or not the individual and
the activity if the corporation’s activity spouse file a joint return for the tax year.
If none of the special rules apply, use
Worksheets 1 and 2 on page 7 to were the individual’s activity, directly or An individual would materially
determine the amount to enter in Part I indirectly own more than 50% (by value) participate in an activity of the
of Form 8810 for each passive rental of the corporation’s outstanding stock. corporation if one or more of the
activity. If the corporation has credits For this purpose, an individual’s following tests are satisfied:
from passive rental activities, use participation in all activities other than 1. The individual participated in the
Worksheet 5 on page 11 to figure the activities of the corporation is activity for more than 500 hours.
amount to enter in Part II of Form 8810. disregarded. 2. The individual’s participation in the
A closely held corporation also activity for the tax year was substantially
Trade or Business Activities materially participates in an activity if the all of the participation in the activity of
corporation satisfies the requirements of all individuals (including individuals who
A trade or business activity is an activity
section 465(c)(7)(C) (without regard to (iv) did not own any interest in the
(other than a rental activity or an activity
for the “qualifying business” exception corporation or the activity) for the year.
treated as incidential to an activity of
holding property for investment) that: from the at-risk limitations). 3. The individual participated in the
These requirements are met if: activity for more than 100 hours during
1. Involves the conduct of a trade or
1. During the entire 12-month period the tax year, and that individual
business (within the meaning of section
ending on the last day of the tax year, participated at least as much as any
substantially all the services of at least other individual (including individuals
2. Is conducted in anticipation of who did not own any interest in the
starting a trade or business, or one full-time employee of the
corporation were in the active corporation or the activity) for the year.
3. Involves research or experimental management of the activity; 4. The activity is a significant
expenditures deductible under section participation activity for the individual for
174 (or that would be if the corporation 2. During the same period,
substantially all the services of at least the tax year, and the individual’s total

Page 3
participation in all significant participation can be established by other Example. The corporation has a
participation activities during the year reasonable means. Reasonable means significant ownership interest in a bakery
exceeded 500 hours. A significant for this purpose may include, but are not and a movie theater in Baltimore and in
participation activity is any trade or limited to, the identification of services a bakery and a movie theater in
business activity in which the individual performed over a period of time and the Philadelphia. Depending on all the
participated for more than 100 hours approximate number of hours spent relevant facts and circumstances, there
during the year and in which the performing the services during that may be more than one reasonable
individual did not materially participate period, based on appointment books, method for grouping the corporation’s
under any of the material participation calendars, or narrative summaries. activities. For instance, the following
tests (other than this test 4). Special rules for limited partners.— groupings may or may not be
For this purpose, an individual’s Generally, a limited partner cannot permissible: a single activity, a movie
participation in all activities other than materially participate in an activity. theater activity and a bakery activity, a
activities of the corporation is However, the corporation is considered Baltimore activity and a Philadelphia
disregarded. to materially participate in an activity in activity, or four separate activities.
5. The individual materially which it holds a limited partner interest if Once the corporation chooses a
participated in the activity for any 5 one or more individuals, each of whom grouping under these rules, it must
(whether or not consecutive) of the 10 would materially participate in the continue using that grouping in later tax
preceding tax years. When determining activity under test 1, 5, or 6 for the tax years unless a material change in the
whether the individual materially year if the corporation’s activity were the facts and circumstances makes it clearly
participated in tax years beginning individual’s activity, directly or indirectly inappropriate.
before 1987, the individual materially own more than 50% (by value) of the The IRS may regroup the corporation’s
participated only if the individual corporation’s outstanding stock. activities if the grouping fails to reflect
participated for more than 500 hours The corporation is not treated as a one or more appropriate economic units
during the tax year. limited partner, however, if the and one of the primary purposes of the
6. The activity is a personal service corporation was a general partner in the grouping is to circumvent the passive
activity in which the individual materially partnership at all times during the activity limitations.
participated for any 3 (whether or not partnership’s tax year ending with or Limitation on grouping certain
consecutive) preceding tax years. When within the corporation’s tax year (or, if activities.—The following activites may
determining whether the individual shorter, during the portion of the not be grouped together:
materially participated for tax years partnership’s tax year in which the
1. A rental activity with a trade or
beginning before 1987, the individual corporation directly or indirectly owned a
business activity unless the activities
materially participated only if the limited partner interest).
being grouped together make up an
individual participated for more than 500 Participation of consolidated group.— appropriate economic unit, and
hours during the tax year. See Regulations section 1.469-1(h)(4) for
a. The rental activity is insubstantial
An activity is a personal service rules for determining whether a
relative to the trade or business activity
activity if it involves the performance of consolidated group materially or
or vice versa, or
personal services in the fields of health, significantly participates.
b. Each owner of the trade or
law, engineering, architecture, business activity has the same
accounting, actuarial science, Grouping the proportionate ownership interest in the
performing arts, consulting, or any other Corporation’s Activities rental activity. If so, the portion of the
trade or business in which capital is not rental activity involving the rental of
a material income-producing factor. Note: These rules are based on final
Regulations section 1.469-4 and property to be used in the trade or
7. Based on all the facts and business activity may be grouped with
circumstances, the individual generally are effective for tax years
ending after May 10, 1992. However, if the trade or business activity.
participated in the activity on a regular, 2. An activity involving the rental of
continuous, and substantial basis during the corporation’s tax year began before
October 4, 1994, the corporation may real property with an activity involving
the tax year. the rental of personal property (except
choose to apply the rules in Proposed
The individual did not materially Regulations section 1.469-4 (and for personal property provided in
participate in the activity under this explained in the 1993 Instructions for connection with the real property or vice
seventh test, however, if the individual Form 8810), rather than these rules. versa).
participated in the activity for 100 hours 3. Any activity with another activity in
or less during the year. Participation in Generally, one or more trade or
business activities or rental activities a different type of business and in which
managing the activity does not count in the corporation holds an interest as a
determining whether the individual may be treated as a single activity if the
activities make up an appropriate limited partner or as a limited
materially participated under the test if: entrepreneur (as defined in section
economic unit for the measurement of
a. Any person (except that individual) gain or loss under the passive activity 464(e)(2)) if that other activity engages in
received compensation for performing rules. Whether activities make up an holding, producing, or distributing
services in the management of the appropriate economic unit depends on motion picture films or videotapes;
activity; or all the relevant facts and circumstances. farming; leasing section 1245 property;
b. Any person in the activity spent The factors given the greatest weight in or exploring for (or exploiting) oil and gas
more hours during the tax year than that determining whether activities make up resources or geothermal deposits.
individual spent performing services in an appropriate economic unit are: Activities conducted through
the management of the activity 1. Similarities and differences in types partnerships and other C corporations
(regardless of whether the individual was of trades or businesses, subject to section 469.—Once a
compensated for the management partnership or corporation determines its
services). 2. The extent of common control,
activities under these rules, a partner or
Proof of participation.—Participation in 3. The extent of common ownership, shareholder may use these rules to
an activity can be proved by any 4. Geographical location, and group those activities with each other,
reasonable means. Contemporaneous 5. Interdependencies between the with activities conducted directly by the
daily time reports, logs, or similar activities. partner or shareholder, and with
documents are not required if activities conducted through other
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partnership and corporations. A partner working interests in oil and gas wells beginning before 1987, but for basis or
or shareholder may not treat as separate from passive activities. See Regulations at-risk limitations.
activities those activities grouped section 1.469-2(c)(6). ● Net negative section 481 adjustments
together by the partnership or ● Income treated as income that is not allocated to activities other than passive
corporation. passive activity income under Temporary activities. See Temporary Regulations
Partial disposition of an activity.—The Regulations section 1.469-2T(f) and section 1.469-2T(d)(7).
corporation may treat the disposition of Regulations section 1.469-2(f). See ● Deductions for losses from fire, storm,
substantially all of an activity as a Recharacterization of Passive Income shipwreck or other casualty, or from
separate activity if it can prove with below. theft, if losses similar in cause and
reasonable certainty: ● Overall gain from any interest in a severity do not recur regularly in the
1. The prior year unallowed losses, if publicly traded partnership. activity.
any, allocable to the part of the activity ● State, local, and foreign income tax
disposed of, and refunds.
Recharacterization of Passive
2. The net income or loss for the year Income
● Any reimbursement of a casualty or
of disposition allocable to the part of the theft loss included in income to recover Certain income from passive activities
activity disposed of. all or part of a prior year loss deduction, may be recharacterized and excluded
if the deduction for the loss was not from passive activity income. The
Passive Activity Income treated as a passive activity deduction. amount of income recharacterized
● Cancellation of debt income to the equals the net income from the sources
and Deductions described below. If during the tax year
extent that, at the time the debt is
Take into account only passive activity discharged, the debt is not properly the corporation received net income
income and passive activity deductions allocable under Temporary Regulations from any sources described below
in determining the corporation’s overall section 1.163-8T to passive activities. (either directly or through a partnership),
gain or overall loss from all passive see Pub. 925 for details on reporting net
activities or any passive activity. To Passive Activity Deductions income or loss from these sources. Also
figure its passive activity loss, a closely see Temporary Regulations section
held corporation subtracts both passive Passive activity deductions include all 1.469-2T(f) and Regulations section
activity income and net active income deductions from activities that are 1.469-2(f) for more information.
from its passive activity deductions. See passive activities for the tax year and all
deductions from passive activities that Income from the following sources
the instructions for line 2 on page 8 for may be subject to the net income
the definition of net active income. were disallowed under the passive loss
rules in prior tax years and carried recharacterization rules.
Passive Activity Income forward to the tax year under section ● Significant participation passive
469(b). See Regulations section activities. A significant participation
Passive activity income includes all 1.469-1(f)(4). passive activity is any trade or business
income from passive activities, including activity (as defined on page 3) in which
(with certain exceptions described in Passive activity deductions include
losses from dispositions of property the corporation is treated as having
Temporary Regulations section participated for more than 100 hours
1.469-2T(c)(2) and Regulations section used in a passive activity at the time of
the disposition and losses from a during the tax year but did not materially
1.469-2(c)(2)) gain from the disposition of participate.
an interest in a passive activity or disposition of less than an entire interest
property used in a passive activity at the in a passive activity. See Dispositions ● Rental of property when less than
time of the disposition. on page 6 for the treatment of losses on 30% of the unadjusted basis of the
certain dispositions of an entire interest property is subject to depreciation.
Passive activity income does not
include the following:
in an activity. ● Passive equity-financed lending
Passive activity deductions do not activities.
● Income from an activity that is not a
passive activity.
include the following: ● Rental of property incidental to a
● Deductions for expenses (other than development activity.
● Portfolio income, including interest,
dividends, annuities, and royalties not
interest expense) that are clearly and ● Rental of property to an activity in
directly allocable to portfolio income. which the corporation materially
derived in the ordinary course of a trade
or business, and gain or loss from the ● Dividends-received deductions for participates.
disposition of property that produces dividends not included in passive activity ● Acquisition of an interest in a
those types of income or is held for gross income. pass-through entity that licenses
investment. See Temporary Regulations ● Interest expense, other than interest intangible property.
section 1.469-2T(c)(3). expense properly allocable under
● Personal service income, including Temporary Regulations section 1.163-8T Former Passive Activities
commissions and income from trade or to passive activities. For example,
capitalized interest expense is not a A former passive activity is any activity
business activities in which the that was a passive activity in a prior tax
corporation materially participated for passive activity deduction.
year, but is not a passive activity in the
the tax year. See Temporary Regulations ● Losses from dispositions of property current tax year. A prior year unallowed
section 1.469-2T(c)(4). that produces portfolio income or loss from a former passive activity is
● Income from positive section 481 property held for investment. allowed to the extent of the current year
adjustments allocated to activities other ● State, local, and foreign income taxes. income from the activity.
than passive activities. See Temporary ● Charitable contribution deductions. If the current year net income from the
Regulations section 1.469-2T(c)(5). ● Net operating loss deductions, activity is less than the prior year
● Income or gain from investments of percentage depletion carryovers under unallowed loss, enter the prior year
working capital in an activity. section 613A(d), and capital loss unallowed loss and any current year net
● Income from an oil or gas property if carrybacks and carryovers. income from the activity on Form 8810
the corporation treated any loss from a ● Deductions and losses that would and the applicable worksheets.
working interest in the property for any have been allowed for tax years If the current year net income from the
tax year beginning after 1986 as a activity is equal to or greater than the
nonpassive loss under the rule excluding prior year unallowed loss from the
Page 5
activity, report the income and loss on disposition, figure the allowed loss for income or loss and prior year unallowed
the forms and schedules normally used; the current year by multiplying the losses from the activity. All of the
do not enter the amounts on Form 8810. overall loss (which does not include income, gains, deductions, and losses
If the activity has a net loss for the losses allowed in prior years) by the are reported on the forms and schedules
current year, enter the prior year following fraction: normally used.
unallowed loss (but not the current year Gain recognized in the current year The income, gains, deductions, and
loss) on Form 8810 and the applicable Unrecognized gain as of the beginning losses from these activities are only
worksheets. of the current year entered on Form 8810 if there is an
To report a disposition of a former overall gain when combining all income,
Unallowed passive activity credits,
passive activity, follow the rules under gains, deductions, and losses, including
unlike unallowed passive activity losses,
Dispositions below. prior year unallowed losses, from the
are not allowable when the corporation
activity, and the corporation has other
disposes of its interest in an activity.
passive activities to report on Form
Dispositions However, the corporation may elect to
8810. Report the income, gains,
increase the basis of the credit property
Disposition of Less Than an Entire deductions, and losses on the forms or
by the amount of the original basis
Interest schedules normally used and also enter
reduction of the property to the extent
the income, gains, deductions, and
Gains and losses from the disposition of that the credit has not been allowed by
losses on Worksheet 1 on page 7 if
less than an entire interest in an activity reason of the passive activity rules. To
there are other passive activities to
are treated as part of the overall gain or make the election, complete Part III of
report on Form 8810.
loss from the activity for the current Form 8810. No basis adjustment may be
elected on a partial disposition of the If there is an overall loss after
year. A disposition of less than an entire combining the income, gains,
interest does not trigger the allowance corporation’s interest in a passive
activity. deductions, and losses (including prior
of prior year unallowed losses. year unallowed losses) from the activity,
A partner in a publicly traded
Disposition of an Entire Interest report all of the income, gains,
partnership (PTP) is not treated as
deductions, and losses on the proper
If the corporation disposed of its entire having disposed of an entire interest in
forms and schedules, but do not enter
interest in a passive activity or a former an activity of a PTP until there is an
them on the worksheets or on Form
passive activity to an unrelated party in entire disposition of the partner’s interest
a fully taxable transaction during the tax in the PTP.
Note: Members of a consolidated group,
year, the losses allocable to the activity
Reporting an Entire Disposition on see Temporary Regulations section
for the year are not limited by the
Schedule D or Form 4797 1.469-1T(h)(6), (7), and (8) for rules on
passive activity loss rules. A fully taxable
applying the passive loss rules to
transaction is a transaction in which all When the corporation completely dispositions of property and other
of the realized gain or loss is recognized. disposes of an entire interest in a intercompany transactions.
If the corporation is using the passive activity, there may be net
installment method to report this kind of

Page 6
Specific Instructions Worksheet 1—Computation of Income, Gains, Deductions, and Losses
Note: Complete Worksheets 1 and 2 for Worksheet 2
before completing Part I of Form 8810. Name of activity: Name of activity:

Worksheet 1 1. Gross receipts
Worksheet 1 is used to figure the total 2. Schedule D gains
current year income, gains, deductions,
3. Form 4797 gains
and losses for each passive activity.
4. Other passive income
Gross receipts and other income from
passive activities and passive activity 5. Total income. Add lines 1
gains reported on Form 4797 and through 4 and enter the
result in column (a) of
Schedule D are entered on lines 1 Worksheet 2 ©
through 4 of Worksheet 1. Passive
6. Deductions:
activity deductions are entered on lines
6a through 6l, and passive activity a. Cost of goods sold
losses reported on Schedule D and b. Compensation of officers
Form 4797 are entered on lines 8 and 9. c. Salaries and wages
The total income from line 5 is entered d. Repairs and maintenance
in column (a) of Worksheet 2 and the
total deductions and losses from line 10 e. Bad debts
are entered in column (b) of f. Rents
Worksheet 2. g. Taxes and licenses
Gross receipts, gains from the sale of h. Interest
business assets, capital gains, and other i. Depreciation
passive income should also be entered
on the forms and schedules normally j. Depletion
used. Allowable passive activity k. Advertising
deductions and losses are entered on l. Other deductions
the forms and schedules after Form 7. Total deductions.
8810 is completed and the deductions
Add lines 6a through 6l
and losses are allocated to the activities.
8. Schedule D losses
9. Form 4797 losses
10. Total deductions and
losses. Add lines 7 through 9
and enter the result here
and in column (b) of
Worksheet 2 ©

Worksheet 2
Total income for the current year is shown on line 5 in Worksheet 1 and total deductions and losses for the current year are
shown on line 10 in Worksheet 1. The prior year unallowed losses can be found in the corporation’s Worksheet 4, column (c) of
the 1993 Form 8810 instructions. The totals from columns (a), (b), and (c) of Worksheet 2 are entered on lines 1a, 1b, and 1c of
Form 8810.
Combine income, deductions, and losses in columns (a) through (c) for each activity. Enter any overall gain in column (d) or
any overall loss in column (e). Columns (d) and (e) are not entered on Form 8810. These amounts will be used when Form 8810
is completed to figure the loss allowed for the current year.

Worksheet 2 for Form 8810, Lines 1a, 1b, and 1c
Current year Prior year Overall gain or loss
Name of activity (a) Income (b) Deductions and (c) Unallowed
(d) Gain (e) Loss
(line 1a) losses (line 1b) losses (line 1c)

Totals. Enter on lines 1a,1b, and 1c of
Form 8810 ©

Page 7
Part I—1994 Passive ● Net passive income or loss. transaction, figure net active income by
● Portfolio income. See Passive Activity taking into account an overall loss from
Activity Loss that activity only to the extent it exceeds
Income on page 5.
Lines 1d and 3.—If line 1d or 3 shows overall gain from all other passive
● Deductions attributable to portfolio
net income or zero, all the deductions activities (the gain, if any, shown on line
income described in Temporary
and losses are allowed including any 1d of Form 8810). If there is an overall
Regulations section 1.469-2T(d)(2)(i), (ii),
prior year unallowed losses entered on loss from all other passive activities (line
and (iv).
line 1c. Enter the deductions on the 1d of Form 8810 is a loss), figure net
appropriate lines of Form 1120 and any ● Interest expense allocated under active income by taking into account all
losses from Form 4797 or Schedule D Temporary Regulations section 1.163-8T of the overall loss from that activity.
(Form 1120) on that form or schedule, if to a portfolio expenditure (within the
Line 4.—Use Worksheet 3 below and
applicable, including any prior year meaning of Temporary Regulations
Worksheet 4 on page 9 to figure the
unallowed losses that should go on section 1.163-8T(b)(6)).
unallowed deductions and losses to be
those forms. If the prior year unallowed ● Gain on the disposition of substantially carried forward and the allowed
losses include deductions that would appreciated property formerly held for deductions and losses to report on the
have been reported on page 1 of Form investment. See Regulations section forms and schedules for 1994.
1120 instead of on Form 4797 or 1.469-2(c)(2)(iii)(F). Worksheet 2, columns (d) and (e), will
Schedule D, include the prior year ● Gross income from certain oil or gas show whether an activity had an overall
unallowed losses on the appropriate line properties treated under Regulations gain or loss. If an activity has an overall
along with any current year deduction or section 1.469-2(c)(6) as not from a gain in column (d) of Worksheet 2, report
loss from that line. For example, the passive activity. all of the deductions and losses listed in
corporation had $1,000 of deductions ● Gross income and deductions from Worksheet 1 and any prior year
for current year repairs and maintenance any trade or business activity of trading unallowed losses in Worksheet 2 for
and $500 of deductions for prior year certain personal property described in those activities on the appropriate lines
unallowed repairs and maintenance. Temporary Regulations section of Form 1120 and on Schedule D or
Enter $1,500 as the deduction for 1.469-1T(e)(6), but only if the corporation Form 4797, if applicable.
repairs and maintenance allowed from does not materially participate in the Use Worksheets 3 and 4 for activities
passive activities on the proper line. activity for the tax year. in Worksheet 2 that show an overall loss
Line 2—Closely held corporations.— If the corporation disposed of its entire in column (e).
Closely held corporations can offset the interest in a passive activity to an
loss, if any, on line 1d with net active unrelated party in a fully taxable
income. Net active income is the
corporation’s taxable income for the tax
year, determined without regard to the
following items:

Worksheet 3
If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to figure the unallowed
deductions and losses for each activity.
If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses (including prior year
unallowed losses) for that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120 and enter any
losses on Form 4797 or Schedule D, if applicable.
Note: If there were prior year unallowed losses from 1993, include the pr ior year unallowed losses on the appropr iate line along
with any current year deduction or loss for that line. See the example in the instructions for lines 1d and 3 above. Prior year
unallowed losses from Form 4797 and Schedule D (For m 1120) should have been kept separate last year and should be
identified as “pr ior year unallowed passive activity losses” on For m 4797 and Schedule D (For m 1120).
Column (a).—Enter the loss from column (e) of Worksheet 2.
Column (b).—Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for
each of the activities in column (b). The total of all the ratios should equal 1.00.
Column (c).—Multiply the unallowed loss from line 3 of Form 8810 by each of the ratios in column (b) and enter the results in
column (c).
Use Worksheet 4 to figure the allowed deductions and losses.

Worksheet 3—Allocation of Unallowed Deductions and Losses

Name of activity (a) Loss from (b) Ratio (c) Unallowed deductions
Worksheet 2 col. (e) (see instr.) and losses (see instr.)

Totals © 1.00

Page 8
Worksheet 4 Line 3, column (a).—Enter any Form the Form 1120 deductions by multiplying
4797 losses from line 9 of Worksheet 1 the unallowed loss attributable to the
Use Worksheet 4 to allocate the plus any prior year unallowed Form 4797 total Form 1120 deductions by each of
unallowed deductions and losses for losses for that activity. the ratios in column (b). Enter the
each activity among Form 1120 portion of the unallowed loss in
deductions and any losses to be Line 1, column (b).—Divide each of the
individual Form 1120 deductions shown Worksheet 3, column (c) that is
reported on Form 4797 and Schedule D. attributable to a Schedule D or Form
in column (a) by the total of all of the
If the unallowed loss is reported on Form 1120 deductions in column (a) and 4797 loss in column (c) of this
one form or schedule, skip the following enter the ratio for each of the worksheet.
example and complete Worksheet 4. deductions in column (b). The total of Column (d).—Subtract column (c) from
If the unallowed loss is from losses the ratios must equal 1.00. column (a) and enter the results in this
reported on more than one form or Column (c).—Allocate the portion of the column. Enter the deductions allowed
schedule, allocate the unallowed loss loss in Worksheet 3, column (c), among for Form 1120 on the proper lines of
from column (c) of Worksheet 3 among Form 1120 and enter the allowed
the net losses as follows: Schedule D and Form 4797 losses on
Example. The corporation has one that form or schedule.
passive activity. The activity has an
unallowed loss of $18,000 in column (c)
of Worksheet 3 and the following net
losses and net gain: Worksheet 4—Allowed Deductions and Losses
Form 1120
Gross receipts $100,000 Name of activity: (c) Unallowed (d) Allowed
(a) Deductions (b) Ratio deductions and deductions and
Deductions 120,000 and losses losses losses
Net loss ($20,000)
1. Form 1120 deductions:
Schedule D Form 4797
Gain $1,000 Gain $5,000 a. Cost of goods sold
Loss (2,000) Loss (2,000) b. Compensation of officers
Net loss ($1,000) Net gain $3,000
c. Salaries and wages
Add the net losses of $20,000 and
d. Repairs and maintenance
$1,000, for a total of $21,000. Divide the
net loss reported on each form by the e. Bad debts
total of the net losses, and multiply the f. Rents
result by the unallowed loss of $18,000, g. Taxes and licenses
as shown below: h. Interest
Form 1120: 3 $18,000 = $17,143 i. Depreciation
j. Depletion
Schedule D: 3 $18,000 = $857 k. Advertising
l. Other deductions
On Form 4797, report the full $2,000
Total Form 1120 deductions © 1.00
loss and the $5,000 gain. On Worksheet
4, enter the $17,143 of unallowed 2. Schedule D losses
deductions allocated to Form 1120 in 3. Form 4797 losses
column (c) on the line for total Form Name of activity: (b) Ratio (c) Unallowed (d) Allowed
(a) Deductions deductions and deductions and
1120 deductions. Enter the $857 of and losses losses losses
unallowed Schedule D losses in column
(c) of line 2. Worksheet 4 is used to 1. Form 1120 deductions:
allocate the $17,143 to the Form 1120 a. Cost of goods sold
deductions and show the allowed and b. Compensation of officers
unallowed Schedule D loss.
c. Salaries and wages
Line 1, column (a).—Enter the current
year deductions for each Form 1120 d. Repairs and maintenance
expense (lines 6a through 6l of e. Bad debts
Worksheet 1) plus any prior year f. Rents
unallowed Form 1120 deduction for that g. Taxes and licenses
activity. For example, if line 6i of
h. Interest
Worksheet 1 shows current year
depreciation for the activity of $2,200, i. Depreciation
and the activity had prior year unallowed j. Depletion
depreciation of $1,200, enter $3,400 on k. Advertising
line 1i, column (a), of Worksheet 4.
l. Other deductions
Line 2, column (a).—Enter any © 1.00
Total Form 1120 deductions
Schedule D losses from line 8 of
Worksheet 1 plus any prior year 2. Schedule D losses
unallowed Schedule D losses for that 3. Form 4797 losses

Page 9
Publicly Traded Partnerships same types of income and losses that of its gross receipts from real property
would be included in figuring net income trades or businesses in which it
(PTPs) or loss from a non-PTP passive activity materially participated). See Rental
A publicly traded partnership (PTP) is a (see Passive Activity Income and Activities on page 2.
partnership whose interests are traded Deductions on page 5).
on an established securities market or 2. If there is an overall gain, the net Worksheet 5
are readily tradable on a secondary gain portion (total income in excess of
market (or its substantial equivalent). Use Worksheet 5 on page 11 to figure
total deductions and losses) is
the amounts to enter on line 5a and 5b
An established securities market nonpassive income. Report the income,
of Form 8810.
includes any national securities deductions, and losses on the forms
exchange and any local exchange and schedules normally used. Column (a).—Convert any current year
registered under the Securities qualified expenditures into credits before
3. If there is an overall loss (other than
Exchange Act of 1934 or exempted from beginning Worksheet 5. Use the
in a year in which the corporation
registration because of the limited following forms:
disposed of its entire interest in the
volume of transactions. It also includes PTP), the deductions and losses are Form 3800, General Business Credit.—
any over-the-counter market. allowed to the extent of the income, and Enter the credits from line 2 of Form
A secondary market generally exists the excess deductions and losses are 3800 in column (a) of Worksheet 5. If the
where a person stands ready to make a carried forward for use in a future year credits are from more than one activity
market in the interest. An interest is when there is income to offset them. or more than one type of credit,
treated as readily tradable if the interest Report the income and the loss allowed separate the credits by activity or type
is regularly quoted by persons, such as to the extent of income on the form or before making entries in the worksheet.
brokers or dealers, who are making a schedule normally used. For example, the corporation has a jobs
market in the interest. credit from one passive activity and a
research credit from a different passive
The substantial equivalent of a Part II—1994 Passive activity. Enter the jobs credit and the
secondary market exists where there is Activity Credits research credit on separate lines in
no identifiable market maker, but the
Use Part II of Form 8810 to figure the column (a) of Worksheet 5.
holder of an interest has a readily
available, regular, and ongoing amount of credits allowed from passive Form 5735, Possessions Corporation
opportunity to sell or exchange an activities for the current year and the Tax Credit Allowed Under Section
interest through a public means of amount that is unallowed and carried 936.—Enter the portion of the section
obtaining or providing information of forward. 936 credit attributable to passive
offers to buy, sell, or exchange interests. The following credits from passive activities from Form 5735 in column (a)
Similarly, the substantial equivalent of a activities are included on Form 8810: of Worksheet 5.
secondary market exists where the ● Investment credit (including the Form 6765, Credit for Increasing
prospective buyers and sellers have the rehabilitation credit, energy credit, and Research Activities (or for claiming
opportunity to buy, sell, or exchange reforestation credit); the orphan drug credit).—Complete
interests in a time frame and with the Part I if you have an orphan drug credit.
● Jobs credit; Enter the portion of the credit
regularity and continuity that the
existence of a market maker would ● Credit for alcohol used as fuel; attributable to passive activities from line
provide. ● Credit for increasing research 4 of Form 6765 in column (a) of
Special instructions for PTPs.—Losses activities; Worksheet 5.
from passive activities the corporation ● Low-income housing credit; Form 8586, Low-Income Housing
holds through a PTP generally can be ● Enhanced oil recovery credit; Credit.—If the corporation is not
used only to offset income or gain from required to file Form 3800, enter the
● Disabled access credit;
passive activities of the same PTP. Any portion of the credit attributable to
unallowed loss from a PTP passive ● Renewable electricity production passive activities from line 6 of Form
activity is carried forward and allowed in credit; 8586 in column (a) of Worksheet 5.
a tax year when the corporation has ● Empowerment zone employment Form 8834, Qualified Electric Vehicle
passive income from the same PTP or credit; Credit.—Enter the credits from line 10 of
when the corporation disposes of its ● Indian employment credit; Form 8834 in column (a) of Worksheet 5.
entire interest in that PTP. ● Credit for employer social security and If the credits are from more than one
Income from passive activities the Medicare taxes paid on certain activity, separate the credits by activity
corporation holds through a PTP cannot employee tips; before making entries in the worksheet.
be used to offset losses from passive ● Credit for contributions to selected Form 8844, Empowerment Zone
activities the corporation holds through community development corporations; Employment Credit.—Enter the credits
another PTP or losses from any other from line 5 in column (a) of Worksheet 5.
passive activities. ● Possessions corporation tax credit;
If the credits are from more than one
Passive activity loss rules for partners ● Orphan drug credit; activity, separate the credits by activity
in PTPs.—Do not include any income, ● Qualified electric vehicle credit; and before making entries in the worksheet.
gains, deductions, or losses from PTP ● Nonconventional source fuel credit. Nonconventional source fuel credit.—
passive activities on Form 8810. Instead, Credits from passive activities are any Figure the credit from passive activities
use the following rules to figure and of the credits listed above from: for fuel produced from a
report income, gains, deductions, and nonconventional source and enter the
● A trade or business activity in which
losses from the PTP passive activity or credit in column (a) of Worksheet 5. See
the corporation did not materially
activities held through each PTP that the section 29 for more information on the
participate. See Trade or Business
corporation owned an interest in during credit for fuel produced from a
Activities on page 3.
the tax year: nonconventional source.
● A rental activity (other than a rental
1. Combine any current year income, Column (b).—In figuring this year’s
real estate activity in which the
gains, deductions, and losses, and prior passive activity credit, the corporation
corporation materially participated, if the
year unallowed losses to see if there is must take into account any credits from
corporation was a closely held
an overall gain or loss. Include only the passive activities disallowed for prior
corporation that derived more than 50%
Page 10
Worksheet 5—For Form 8810, Lines 5a and 5b

(b) Prior Year (c) Total Credits
(a) Current Year
Name of activity From Form Unallowed Credits (add columns (a)
Credits (line 5a)
(line 5b) and (b))

Totals. Enter on lines 5a and 5b of Form 8810 ©

years and carried forward to this year. necessary to refigure items based on M. Tax attributable to line L
Enter in column (b) of Worksheet 5 the taxable income, such as the N. Subtract line M from line G. If zero or
less, enter -0- here and on line P
prior year unallowed credits from column contributions deduction, dividends-
O. Enter the corporation’s nonpassive
(c) of Worksheet 6 in the 1993 Form received deduction, and the net credits without regard to the tax
8810 instructions. operating loss deduction. liability limitations
Line 7.—If any of the following apply, Use the applicable tax rates in section P. Tax attributable to net active income.
enter zero on line 7 and do not complete 11 when figuring the tax attributable Subtract line O from line N
Q. Tax attributable to net passive
Part I or Part II of the computation on amounts. Also, see how to figure tax in income and net active income. Add
this page. Enter zero on line 7 if: the instructions for the tax return filed. lines F and P. Enter the result here and
● The corporation is a personal service on line 7 of Form 8810
corporation with a loss or zero on line
Computation for Line 7
Line C.—Enter the net income, if any,
1d of Form 8810; or Part I—Computation of Tax from line 1d of Form 8810. If the
● The corporation is a personal service Attributable to Net Passive Income corporation has an overall loss from the
corporation with net passive income on A. Income tax before credits from Form entire disposition of a passive activity,
line 1d of Form 8810 and the 1120 (Schedule J, line 3)
the amount to enter on line C is the net
B. Taxable income from Form
corporation has an overall loss from the 1120 income from line 1d reduced by the
entire disposition of a passive activity C. Net passive income. See overall loss, but not below zero. If the
that is equal to or greater than the net instructions below result is zero, skip the rest of the Part I
income on line 1d; or D. Subtract line C from line B. If computation.
● The corporation is a closely held zero or less, enter -0- here
Line E.—Figure the tax on this amount
and on line E below
corporation with a loss or zero on line E. Tax attributable to line D. See as if it were the corporation’s only
1d of Form 8810 and that amount is instructions below taxable income.
equal to or greater than the net active F. Tax attributable to net passive Line J.—If the corporation has net
income on line 2 of Form 8810; or income. Subtract line E from line A. passive income, enter the amount from
Closely held corporations that do not
● The corporation is a closely held have net active income and personal line C on this line. If the corporation has
corporation with net income on line 3 of service corporations enter the amount a net loss from line 1d of Form 8810,
Form 8810, and the corporation has an here and on line 7 of Form 8810 enter that amount on line J as a
overall loss from an entire disposition negative amount.
that is equal to or greater than the net Part II—Computation of Tax
Attributable to Net Active Income Line 9.—If the corporation has one type
income on line 3. of credit, the amount on line 9 is the
G. Enter amount from line E above if Part
Part I is used by personal service I is completed. Otherwise, enter credit allowed for the year. See
corporations and closely held income tax before credits from Form Reporting Allowed Credits on Tax
corporations with net passive income. 1120 (Schedule J, line 3) Return on page 12.
Part II is used by closely held H. Taxable income from Form Use Worksheet 6 on page 12 to figure
corporations that have net active how much of the credit on line 9 is
I. Net active income
income. See the line 2 instructions on J. Net passive income or loss. allowed for each activity. Keep a record
page 8 for the definition of net active See instructions below of the unallowed credit and the activity
income. If the corporation has both net K. Add lines I and J. If less than to which it belongs to figure the credit
passive income and net active income, -0-, enter as a negative allowed next year.
complete Part I and Part II and enter the amount
amount from line Q on line 7 of Form L. Subtract line K from line H. If
zero or less, enter -0- here
8810. and on line M below
Note: When using taxable income in the
computation for line 7, it is not

Page 11
Worksheet 6 column (a). The total of the ratios should record of these amounts so the credits
equal 1.00. can be carried to the next year.
Use Worksheet 6 to allocate the allowed
and unallowed credits for each activity. Column (c).—Multiply line 8 of Form Column (d).—Subtract column (c) from
8810 by the ratios in column (b) and column (a). These are the allowed
Column (a).—Enter the total credits from enter the results in column (c). These are credits for 1994. The amounts in this
column (c) of Worksheet 5. the unallowed credits for 1994. Keep a column should be reported on the forms
Column (b).—Divide each of the credits normally used. See Reporting Allowed
in column (a) by the total of all credits in Credits on Tax Return below.

Worksheet 6—Allowed and Unallowed Credits
Form To Be (a) Credits (see (b) Ratio (see (c) Unallowed Credits (d) Allowed Credits
Name of activity
Reported on instructions) instructions) (see instructions) (see instructions)

Totals © 1.00

Reporting Allowed Credits tax return showing how the credit was Part III—Election To Increase
on Tax Return figured. Combine any nonpassive credits
for fuel from a nonconventional source Basis of Credit Property
Form 3800.—Enter on line 4 of Form with the passive activity credit before Line 10.—Check the box if the
3800 the total passive activity general applying the limitations and adjustments. corporation elects to increase the basis
business credit allowed from column (d) Report the credit on the line specified by of credit property it used in a passive
of Worksheet 6. the instructions for the tax return being activity or former passive activity by the
Form 5735.—Enter on Form 5735 any filed. unallowed credit that reduced the
allowed possessions corporation tax property’s basis. The election is available
credit. To the left of the entry write, Credits From PTPs for a fully taxable disposition of an entire
“PAC.” A credit from a passive activity held interest in an activity for which a basis
Form 6765.—Enter on line 4 of Form through a PTP is allowed to the extent adjustment was made as a result of
6765 any allowed orphan drug credit. To of the tax attributable to net passive placing in service property for which a
the left of the entry write, “PAC.” Also income from that PTP. See page 10 for credit was taken. On such a disposition,
complete Part II of that form. the definition of a PTP. the corporation may elect to increase
Form 8586.—If the corporation is not Do not enter credits from PTPs on the basis of the credit property
required to file Form 3800, enter on line Form 8810 or the worksheets. Instead, immediately before the disposition (by
7 of Form 8586 any allowed low-income use the following steps to figure the an amount no greater than the amount
housing credit. allowed and unallowed credits from of the original basis reduction) to the
passive activities held through PTPs: extent that the credit has not previously
Form 8834.—Enter on line 12 of Form been allowed because of the passive
8834 the passive activity qualified 1. Figure the tax attributable to net credit limitations. The amount of the
electric vehicle credit allowed from passive income for each PTP with unallowed credit that may then be
column (d) of Worksheet 6. current year passive activity credits or applied against tax is reduced by the
Form 8844.—Enter on line 7 of Form prior year unallowed credits. amount of the basis adjustment.
8844 the passive activity empowerment 2. Use the smaller of the tax No basis adjustment may be elected
zone employment credit allowed from attributable to net income from passive on a partial disposition of the
column (d) of Worksheet 6. activities of the PTP or the credit corporation’s interest in a passive
Nonconventional source fuel credit.—If (including prior year unallowed credits) activity or if the disposition is not fully
the corporation has an allowed passive from passive activities of the PTP as the taxable. The amount of any unallowed
activity credit for fuel produced from a amount allowed. Report the allowed credit, however, remains available to
nonconventional source, see section 29 credits on the form normally used and offset the tax attributable to net passive
for limitations and adjustments to the keep a record of the unallowed credits and net active income.
credit. Attach a separate schedule to the to be carried to the next year.

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