Page 243 - Individual Forms & Instructions Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
• More than half of the personal rules. See Line 2, later, to see if you Active participation. You can meet the
services you performed in trades or busi- used the dwelling unit as a home. active participation requirement without
nesses during the year were performed A working interest in an oil or gas regular, continuous, and substantial in-
in real property trades or businesses in well you held directly or through an en- volvement in real estate activities. But
which you materially participated. tity that did not limit your liability is not you must have participated in making
• You performed more than 750 a passive activity even if you did not management decisions or arranging for
hours of services during the year in real materially participate. others to provide services (such as re-
property trades or businesses in which Royalty income not derived in the or- pairs) in a significant and bona fide
you materially participated. dinary course of a trade or business re- sense. Such management decisions in-
If you are married filing jointly, ei- ported on Schedule E in most cases is clude:
ther you or your spouse must meet both not considered income from a passive • Approving new tenants,
of the above conditions without taking activity. • Deciding on rental terms,
into account services performed by the • Approving capital or repair expen-
other spouse. For more details on passive activities, ditures, and
see the Instructions for Form 8582 and
A real property trade or business is Pub. 925. • Other similar decisions.
any real property development, redevel- You are not considered to actively
opment, construction, reconstruction, ac- Exception for Certain Rental Real participate if, at any time during the tax
quisition, conversion, rental, operation, Estate Activities year, your interest (including your spou-
management, leasing, or brokerage trade se's interest) in the activity was less than
or business. Services you performed as If you meet all of the following condi- 10% by value of all interests in the ac-
an employee are not treated as per- tions, your rental real estate losses are tivity. If you are a limited partner, you
formed in a real property trade or busi- not limited by the passive activity loss are also not treated as actively partici-
ness unless you owned more than 5% of rules, and you do not need to complete pating in a partnership's rental real estate
the stock (or more than 5% of the capital Form 8582. If you do not meet all of activities.
or profits interest) in the employer. these conditions, see the Instructions for Modified adjusted gross income. This
If you qualify as a real estate profes- Form 8582 to find out if you must com- is your adjusted gross income from
sional, rental real estate activities in plete and attach Form 8582 to figure any Form 1040, 1040-SR, or Form
which you materially participated are losses allowed. 1040-NR, line 11, without taking into
not passive activities. For purposes of 1. Rental real estate activities are account:
determining whether you materially par- your only passive activities. • Any allowable passive activity
ticipated in your rental real estate activi- 2. You do not have any prior year loss,
ties, each interest in rental real estate is a unallowed losses from any passive ac- • Rental real estate losses allowed
separate activity unless you elect to treat tivities. for real estate professionals (see Activi-
all your interests in rental real estate as 3. All of the following apply if you ties of real estate professionals, earlier),
one activity. To make this election, at- have an overall net loss from these ac- • Taxable social security or tier 1
tach a statement to your original tax re- tivities. railroad retirement benefits,
turn that declares you are a qualifying • Deductible contributions to a tradi-
taxpayer for the year and you are mak- a. You actively participated (defined tional IRA or certain other qualified re-
ing the election under section 469(c)(7) later) in all of the rental real estate activ- tirement plans under section 219,
(A). The election applies for the year ities. • The student loan interest deduc-
made and all later years in which you b. If married filing separately, you tion,
are a real estate professional. You can lived apart from your spouse all year. • The deduction for one-half of
revoke the election only if your facts c. Your overall net loss from these self-employment tax,
and circumstances materially change. activities is $25,000 or less ($12,500 or • The exclusion from income of in-
If you did not make this elec- less if married filing separately). terest from series EE and I U.S. savings
TIP tion on your timely filed return, d. You have no current or prior year bonds used to pay higher education ex-
you may be eligible to make a unallowed credits from passive activi- penses,
late election to treat all your interest in ties. • Any excluded amounts under an
rental real estate as one activity. See e. Your modified adjusted gross in- employer's adoption assistance program,
Rev. Proc. 2011-34, 2011-24 I.R.B. 875, come (defined later) is $100,000 or less and
available at IRS.gov/irb/ ($50,000 or less if married filing sepa- • The deduction allowed for for-
2011-24_IRB#RP-2011-34. rately). eign-derived intangible income and
global intangible low-taxed income.
If you were a real estate professional f. You do not hold any interest in a Recordkeeping
for 2022, complete Schedule E, line 43. rental real estate activity as a limited
partner or as a beneficiary of an estate or You must keep records to support items
Other activities. The rental of a dwell-
ing unit that you used as a home is not a trust. reported on Schedule E in case the IRS
has questions about them. If the IRS ex-
subject to the passive loss limitation
amines your tax return, you may be

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