us internal revenue service: i8582cr--1994

8/14/2019 US Internal Revenue Service: i8582cr--1994

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Cat. No. 64649B

Instructions for Form 8582-CRPassive Act ivity Credit LimitationsSection references are to the Internal Revenue Code unless otherwise noted.

Department of the TreasuryInternal Revenue Service

Paperwork Reduction ActNoticeWe ask for the information on this form tocarry out the Internal Revenue laws of theUnited States. You are required to give usthe information. We need it to ensure thatyou are complying with these laws and toallow us to figure and collect the rightamount of tax.

The time needed to complete and filethis form will vary depending on individualcircumstances. The estimated average timeis:

Recordkeeping 2 hr., 5 min.

Learning about the lawor the form 4 hr., 22 min.

Preparing the form 3 hr., 25 min.

Copying, assembling,and sending theform to the IRS 2 hr., 18 min.

If you have comments concerning theaccuracy of these time estimates orsuggestions for making this form simpler,we would be happy to hear from you. Seethe instructions for the tax return withwhich this form is filed.

General Instructions

Changes To Note For tax years beginning after 1993,certain individuals who materiallyparticipate in real property trades orbusinesses are not subject to the passiveactivity limitations on credits from thoserental real estate activities in which theymaterially participate. For details, seeActivities That Are Not Passive Activitieson page 2.

Final regulations defining the termactivity have been issued. See GroupingYour Activities on page 4 for details.

New Part VI, Election To Increase Basisof Credit Property, must be completed if

you disposed of your entire interest in apassive activity (or former passive activity)and you elect to increase the basis ofcredit property used in the activity by theunallowed credit that reduced thepropertys basis.

Purpose of FormForm 8582-CR is used by noncorporatetaxpayers to figure any passive activitycredit for the current tax year (includingany prior year unallowed credits) and the

amount of credit allowed for the currentyear.

Passive activity credits that are notallowed in the current year are carriedforward until they are allowed against thetax on either net passive income or thespecial allowance, if applicable.

Different rules apply to your activitiesand the related credit, depending on thetype of activity. Generally, passive activitiesinclude (1) trade or business activities inwhich you did not materially participate forthe tax year, and (2) rental activitiesregardless of your participation. See Tradeor Business Activities on page 3 andRental Activities on page 2.

Note: Corporations subject to the passiveactivity rules must useForm 8810,Corporate Passive Act ivity Loss and CreditLimitations.

Who Must FileForm 8582-CR is filed by individuals,estates, and trusts with any of thefollowing credits from passive activities:

Investment credit (including therehabilitation credit, energy credit, andreforestation credit);

Jobs credit;

Credit for alcohol used as fuel;

Credit for increasing research activities;

Low-income housing credit;

Enhanced oil recovery credit;

Disabled access credit;

Renewable electricity production credit;

Empowerment zone employment credit;

Indian employment credit;

Credit for employer social security andMedicare taxes paid on certain employeetips;

Credit for contributions to selectedcommunity development corporations;

Orphan drug credit;

Nonconventional source fuel credit; and

Qualified electric vehicle credit.Credits from passive activities are any of

the above credits from:

A trade or business activity in which youdid not materially participate. See Trade orBusiness Activities on page 3.

A rental activity (other than a rental realestate activity in which you materiallyparticipated, if you were a real estateprofessional). See Rental Activities onpage 2.

Overview of FormThe form consists of six parts.

Part I1994 Passive ActivityCredits

Use Part I to combine your credits frompassive activities to determine if you havea passive activity credit for 1994.

If your credits from all passive activitiesexceed the tax attributable to net passiveincome, you will have a passive activitycredit for 1994. Generally, you have netpassive income if line 3 of Form 8582,Passive Activity Loss Limitations, showsincome. See the instructions for line 6 of

Form 8582-CR on page 9 for exceptions.Part IISpecial Allowance forRental Real Estate Activities WithActive Participation

Use Part II to figure the credit allowed ifyou have any credits from rental real estateactivities in which you actively participated(other than rehabilitation credits andlow-income housing credits). (See RentalActivities on page 2 for details.)

Part IIISpecial Allowance forRehabilitation Credits From RentalReal Estate Activities and

Low-Income Housing Credits forProperty Placed in Service Before1990 (or From Pass-ThroughInterests Acquired Before 1990)

Use Part III to figure the credit allowed ifyou have any rehabilitation credits orlow-income housing credits for propertyplaced in service before 1990. Also usethis part if your low-income housing creditis from a partnership, S corporation, orother pass-through entity in which youacquired your interest before 1990,regardless of the date the property wasplaced in service.

Part IVSpecial Allowance forLow-Income Housing Credits forProperty Placed in Service After1989

Use Part IV to figure the credit allowed ifyou have any low-income housing creditsfor property placed in service after 1989. Ifyou held an indirect interest in the propertythrough a partnership, S corporation, orother pass-through entity, use this partonly if your interest in the pass-throughentity was also acquired after 1989.


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Part VPassive Activity CreditAllowed

Use Part V to figure the amount of thepassive activity credit (as determined inPart I) that is allowed for 1994 for allpassive activities.

Part VIElection to Increase Basisof Credit Property

Complete Part VI if you disposed of yourentire interest in a passive activity and youelect to increase the basis of the creditproperty used in the activity by theunallowed credit that reduced the basis ofthe property.

Note: Before reading the instructions thatfollow, seeExample of How To CompleteForm 8582-CR, which begins on page 5.The example goes through a four-stepanalysis of how the form and worksheetsshould be completed for a partner in alimited partnership that has a low-incomehousing credit. This example may provideenough information to complete the formand worksheets without reading all of theinstructions.

Activities That Are NotPassive ActivitiesThe following are not passive activities:

1. Trade or business activities in whichyou materially participated for the tax year.

2. For tax years beginning after 1993,any rental real estate activity in which youmaterially participated, if you were a realestate professional for the tax year. Youwere a real estate professional only if youmet both of the following conditions:

a. More than half of the personalservices you performed in trades orbusinesses were performed in real propertytrades or businesses in which you

materially participated, andb. You performed more than 750 hours

of services in real property trades orbusinesses in which you materiallyparticipated.

For purposes of this rule, each interest inrental real estate is a separate activity,unless you elect to treat all interest inrental real estate as one activity.

If you were married filing jointly, eitheryou or your spouse must separately meetboth of the above conditions withouttaking into account services performed bythe other spouse.

A real property trade or business is anyreal property development, redevelopment,construction, reconstruction, acquisition,conversion, rental, operation, management,leasing, or brokerage trade or business.Services you performed as an employeeare not treated as performed in a realproperty trade or business unless youowned more than 5% of the stock (or morethan 5% of the capital or profits interest) inthe employer.

3. An interest in an oil or gas well drilledor operated under a working interest if atany time during the tax year you held theworking interest directly or through an

entity that did not limit your liability (suchas a general partner interest in apartnership). This exception appliesregardless of whether you materiallyparticipated in the activity for the tax year.

If, however, your liability was notunlimited for the entire year (e.g., youconverted your general partner interest to alimited partner interest during the year),some of your income and losses from theworking interest may be treated as passiveactivity gross income and passive activitydeductions. See Temporary Regulations

section 1.469-1T(e)(4)(ii).4. The rental of a dwelling unit you used

as a residence if section 280A(c)(5) applies.This exception applies if you rented out adwelling unit that you also used as a homeduring the year for a number of days thatexceeds the greater of 14 days or 10% ofthe number of days during the year thatthe home was rented at a fair rental.

5. An activity of trading personalproperty for the account of owners ofinterests in the activity. See TemporaryRegulations section 1.469-1T(e)(6).

6. An interest as a qualified investor in aqualified low-income housing project undersection 502 of the Tax Reform Act of 1986for any tax year in the relief period. SeePub. 925, Passive Activity and At-RiskRules.

Credits from activities that are notpassive activities should not be entered onForm 8582-CR. However, they may besubject to other limitations.

Rental ActivitiesA rental activity is a passive activity even ifyou materially participated in the activity(other than a rental real estate activity inwhich you materially participated, if youwere a real estate professional).

However, if you meet any one of the six

exceptions listed below, the rental of theproperty is not treated as a rental activity.See Reporting Credits From theActivities on page 3 if you meet any of theexceptions.

An activity is a rental activity if tangibleproperty (real or personal) is used bycustomers or held for use by customers,and the gross income (or expected grossincome) from the activity representsamounts paid (or to be paid) mainly for theuse of the property. The activity isconsidered a rental activity even if the useis under a lease, a service contract, orsome other arrangement that is not calleda lease.

Exceptions

An activity is not a rental activity if:

1. The average period of customer useof the rental property is 7 days or fewer.

Figure the average period of customeruse for a class of property by dividing thetotal number of days in all rental periodsby the number of rentals during the taxyear. If the activity involves renting morethan one class of property, multiply theaverage period of customer use of eachclass by the ratio of the gross rental

income from that class to the activitystotal gross rental income. The activitysaverage period of customer use equals thesum of these class-by-class averageperiods weighted by gross income. SeeRegulations section 1.469-1(e)(3)(iii).

2. The average period of customer use(defined above) of the rental property is 30days or less, and significant personalservices were provided in making therental property available for customer use.

Significant personal services includeonly services performed by individuals. Indetermining whether personal services aresignificant, all the relevant facts andcircumstances are considered. Facts andcircumstances include the frequency of theservices, the type and amount of laborrequired to perform the services, and thevalue of the services relative to the amountcharged for use of the property.

3. Extraordinary personal serviceswere provided in making the rentalproperty available for customer use.

Services provided in making rentalproperty available for customer use areextraordinary personal services only ifthe services are performed by individuals,and the customers use of the rentalproperty is incidental to their receipt of theservices.

4. The rental of the property isincidental to a nonrental activity.

The rental of property is incidental to anactivity of holding property for investment ifthe main purpose of holding the property isto realize a gain from the appreciation ofthe property, and the gross rental incomeis less than 2% of the smaller of theunadjusted basis of the property or thefair market value of the property.

Unadjusted basis means the cost of theproperty without regard to depreciationdeductions or any other adjustment

described in section 1016 that reducesbasis.

The rental of property is incidental to atrade or business activity if:

a. You own an interest in the trade orbusiness activity during the tax year;

b. The rental property was mainly usedin the trade or business activity during thetax year or during at least 2 of the 5preceding tax years; and

c. The gross rental income from theproperty is less than 2% of the smaller ofthe unadjusted basis of the property or thefair market value of the property.

Lodging provided for the employers

convenience to an employee or theemployees spouse or dependents isincidental to the activity or activities inwhich the employee performs services.

5. You customarily make the rentalproperty available during defined businesshours for nonexclusive use by variouscustomers.

6. You provide property for use in anonrental activity of a partnership, anS corporation, or joint venture in yourcapacity as an owner of an interest in suchpartnership, S corporation, or joint venture.


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Reporting Credits From theActivities

If you meet any of the six exceptions listedabove, your rental of the property is not arental activity. You then must determinewhether your rental of the property is atrade or business activity and, if so,whether you materially participated in theactivity for the tax year (see Trade orBusiness Activities and MaterialParticipation below). If the activity is atrade or business activity in which you did

not materially participate, enter the creditsfrom the activity in Worksheet 4 on page11.

If you meet any of the six exceptionslisted above, and the activity is a trade orbusiness activity in which you materiallyparticipated, report the credits from theactivity on the form you normally use.

If you did not meet any of the sixexceptions, the rental activity is generally apassive activity. Special rules apply if youconduct the rental activity through apublicly traded partnership (PTP). SeePublicly Traded Partnerships (PTPs) onpage 14. If the rental activity is notconducted through a PTP, the passive

rental activity is entered in Worksheet 1, 2,3, or 4 on pages 10 and 11.

Worksheet 1 is for credits (other thanrehabilitation credits and low-incomehousing credits) from passive rental realestate activities in which you activelyparticipated. However, married individualswho file separate tax returns but did notlive apart at all times during the tax yearmust use Worksheet 4 even if there wasactive participation.

Worksheet 2 is for rehabilitation creditsfrom passive rental real estate activitiesand low-income housing credits forproperty placed in service before 1990.This worksheet is also used for low-income

housing credits from a partnership, Scorporation, or other pass-through entity ifyour interest in the pass-through entitywas acquired before 1990, regardless ofthe date the property was placed inservice.

Worksheet 3 is for low-income housingcredits for property placed in service after1989 (unless held through a pass-throughentity in which you acquired your interestbefore 1990).

Worksheet 4 is for credits from passivetrade or business activities in which youdid not materially participate and passiverental real estate activities without activeparticipation (but not rehabilitation credits

from passive rental real estate activitiesand low-income housing credits).

See Special Allowance for CreditsFrom Active Participation in Rental RealEstate Activities below.

Special Allowance for CreditsFrom Active Participation in RentalReal Estate Activities

If you actively participated in a passiverental real estate activity, you may be ableto claim credits from the activity for the taxattributable to a special allowance of up to

$25,000, reduced by any passive lossesallowed under this exception on Form8582. The special allowance also appliesto low- income housing credits andrehabilitation credits from a rental realestate activity, even if you did not activelyparticipate in the activity. The creditsallowed under the special allowance are inaddition to the credits allowed for the taxattributable to net passive income.

Married individuals filing separate returnswho did not live apart at all times duringthe year and trusts cannot use the special

allowance. An estate can use the specialallowance only for its tax years ending lessthan 2 years after the decedents death.

Only individuals and qualifying estatescan actively participate in a rental realestate activity. Limited partners cannotactively participate unless futureregulations provide an exception. Inaddition, you are not considered to activelyparticipate in a rental real estate activity ifat any time during the tax year yourinterest (including your spouses interest) inthe activity was less than 10% (by value)of all interests in the activity.

Active participation is a less stringentrequirement than material participation (see

Material Participation on page 4). Youmay be treated as actively participating ifyou participated, for example, in makingmanagement decisions or arranging forothers to provide services (such as repairs)in a significant and bona fide sense.Management decisions that can count asactive participation include approving newtenants, deciding on rental terms,approving capital or repair expenditures,and other similar decisions.

An estate is treated as activelyparticipating for tax years ending less than2 years after the date of the decedentsdeath if the decedent would have satisfiedthe active participation requirements for

the activity for the tax year in which thedecedent died. Such an estate is aqualifying estate.

The maximum special allowance thatsingle individuals and married individualsfiling a joint return for the tax year canqualify for is $25,000. The maximum is$12,500 in the case of married individualswho file separate returns for the tax yearbut only if they lived apart at all timesduring the tax year. The maximum specialallowance for which an estate can qualifyis $25,000 reduced by the specialallowance for which the surviving spousequalified.

If your modified adjusted gross income

(as defined in the instructions for line 10 onpage 9) is $100,000 or less ($50,000 orless if married filing separately), figure yourcredits based on the amount of themaximum special allowance referred to inthe preceding paragraph. If your modifiedadjusted gross income is more than$100,000 ($50,000 if married filingseparately), the special allowance is limitedto 50% of the difference between$150,000 ($75,000 if married filingseparately) and your modified adjustedgross income. When modified adjustedgross income is $150,000 or more

($75,000 or more if married filingseparately), there is no special allowance.

However, for low-income housing creditsfor property placed in service before 1990,and rehabilitation credits, the limits onmodified adjusted gross income areincreased. If your modified adjusted grossincome is more than $200,000 ($100,000 ifmarried filing separately), the specialallowance is limited to 50% of thedifference between $250,000 ($125,000 ifmarried filing separately), and yourmodified adjusted gross income. When

modified adjusted gross income is$250,000 or more ($125,000 or more ifmarried filing separately), there is nospecial allowance.

The modified adjusted gross incomelimitation does not apply when figuring thespecial allowance for low-income housingcredits for property placed in service after1989 (other than from a pass-throughentity in which you acquired your interestbefore 1990).

Reporting credits from rental real estateactivities.Complete Part I first todetermine your credits from all rental realestate activities and your passive activitycredit. You have a passive activity credit if

line 7 shows an amount other than zero.Complete Part II if you have credits (otherthan low-income housing and rehabilitationcredits) from rental real estate activities inwhich you actively participated. CompletePart III if you have low-income housingcredits from property p laced in servicebefore 1990 (or any low-income housingcredits from a pass-through entity in whichyou acquired your interest before 1990), orrehabilitation credits from rental real estateactivities. Complete Part IV if you havelow-income housing credits for propertyplaced in service after 1989 (other thanfrom a pass-through entity in which youacquired your interest before 1990).

Caution: You cannot claim the low-incomehousing credit on any qualified low-incomehousing project if you or any otherindividual use the transitional rule for thepassive loss rules under section 502 of theTax Reform Act of 1986.

Trade or Business ActivitiesA trade or business activity is an activity(other than a rental activity or an activitytreated as incidental to an activity ofholding property for investment) that:

1. Involves the conduct of a trade orbusiness (within the meaning of section162),

2. Is conducted in anticipation of startinga trade or business, or

3. Involves research or experimentalexpenditures deductible under section 174(or that would be if you chose to deductrather than capitalize them).

Reporting Credits From theActivities

Trade or business activities withmaterial participation.If you materiallyparticipated in a trade or business activity,the activity is not a passive activity. Report


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the credits from the activity on the formyou normally use.

Trade or business activities withoutmaterial participation.If you did notmaterially participate in a trade or businessactivity, the activity is a passive activity. Ingeneral, you must use Worksheet 4 onpage 11 to determine the amount to enteron Form 8582-CR for each trade orbusiness activity in which you did notmaterially participate. However, if you heldthe activity through a PTP, special rulesapply. See Publicly Traded Partnerships

(PTPs) on page 14.

Material ParticipationIn general.Participation, for purposes ofthe material participation tests listedbelow, generally includes any work you didfor an activity if you owned an interest inthe activity at the time you did the work.The capacity in which you did the workdoes not matter. However, work is nottreated as participation if it is not work thatan owner would customarily do in thesame type of activity and one of your mainreasons for doing the work was to avoidthe disallowance of losses or credits fromthe activity under the passive activity rules.

Work you did as an investor in anactivity is not treated as participationunless you were directly involved in theday-to-day management or operations ofthe activity. Work done as an investorincludes:

1. Studying and reviewing financialstatements or reports on operations of theactivity.

2. Preparing or compiling summaries oranalyses of the finances or operations ofthe activity for your own use.

3. Monitoring the finances or operationsof the activity in a nonmanagerial capacity.

You may prove your participation in an

activity by any reasonable means. You donot have to maintain contemporaneousdaily time reports, logs, or similardocuments if you can establish yourparticipation by other reasonable means.Reasonable means for this purpose mayinclude, but are not limited to, identifyingservices performed over a period of timeand the approximate number of hoursspent performing the services during thatperiod, based on appointment books,calendars, or narrative summaries.

Participation by your spouse during thetax year in an activity you own may becounted as your participation in theactivity. Your spouses participation may

be included as your participation even ifyour spouse did not own an interest in theactivity and whether or not you and yourspouse file a joint return for the tax year.

Tests for individuals.You materiallyparticipated for the tax year in an activity ifyou satisfy one or more of the followingtests:

1. You participated in the activity formore than 500 hours.

2. Your participation in the activity forthe tax year was substantially all of theparticipation in the activity of all individuals

(including individuals who did not own anyinterest in the activity) for the year.

3. You participated in the activity formore than 100 hours during the tax year,and you participated at least as much asany other individual (including individualswho did not own any interest in theactivity) for the year.

4. The activity is a significantparticipation activity for the tax year, andyou participated in all significantparticipation activities during the year formore than 500 hours. A significantparticipation activity is any trade orbusiness activity in which you participatedfor more than 100 hours during the yearand in which you did not materiallyparticipate under any of the other materialparticipation tests.

5. You materially participated in theactivity for any 5 (whether or notconsecutive) of the 10 preceding tax years.When determining whether you materiallyparticipated in tax years beginning before1987 (other than a tax year of apartnership, an S corporation, an estate, ora trust ending after 1986), you materiallyparticipated only if you participated formore than 500 hours during the tax year.

6. The activity is a personal serviceactivity in which you materially participatedfor any 3 (whether or not consecutive)preceding tax years. When determiningwhether you materially participated for taxyears beginning before 1987 (other than atax year of a partnership, an S corporation,an estate, or trust ending after 1986), youmaterially participated only if youparticipated for more than 500 hoursduring the tax year.

An activity is a personal service activity ifit involves performing personal services inthe fields of health, law, engineering,architecture, accounting, actuarial science,performing arts, consulting, or any other

trade or business in which capital is not amaterial income-producing factor.

7. Based on all the facts andcircumstances, you participated in theactivity on a regular, continuous, andsubstantial basis during the tax year.

You did not materially participate in theactivity under this seventh test, however, ifyou participated in the activity for 100hours or less during the tax year. Yourparticipation in managing the activity doesnot count in determining whether youmaterially participated under this test if:

a. Any person (except you) receivedcompensation for performing services inthe management of the activity; or

b. Any individual spent more hoursduring the tax year than you spentperforming services in the management ofthe activity (regardless of whether theindividual was compensated for themanagement services).

Special rules for limited partners.If youowned your interest in an activity as alimited partner, you generally did notmaterially participate in the activity. Youdid materially participate in the activity,however, if you met material participationtests 1, 5, or 6 above for the tax year.

You are not treated as a limited partnerfor the material participation tests,however, if you were a general partner inthe partnership at all times during thepartnerships tax year ending with or withinyour tax year (or, if shorter, during theportion of the partnerships tax year inwhich you directly or indirectly owned yourlimited partner interest).

Special rules for certain retired ordisabled farmers and surviving spousesof farmers.Certain retired or disabledfarmers and surviving spouses of farmers

are treated as materially participating in afarming activity if the real property used inthe activity meets the estate tax rules forspecial valuation of farm property passedfrom a qualifying decedent. See TemporaryRegulations section 1.469-5T(h)(2).

Estates and trusts.The passive activitycredit limitations apply to an estate ortrust. See Temporary Regulations sections1.469-1T(b)(2) and (3). The rules fordetermining material participation for thispurpose have not yet been issued.

Grouping Your ActivitiesNote: These rules are based on final

Regulations section 1.469-4 and generallyare effective for tax years ending after May10, 1992. However, if your tax year beganbefore October 4, 1994, you may chooseto apply the rules in Proposed Regulationssection 1.469-4 (and explained in the 1993Instructions for Form 8582-CR), rather thanthese rules.

Generally, one or more trade or businessactivities or rental activities may be treatedas a single activity if the activities make upan appropriate economic unit for themeasurement of gain or loss under thepassive activity rules. Whether activitiesmake up an appropriate economic unitdepends on all the relevant facts andcircumstances. The factors given thegreatest weight in determining whetheractivities make up an appropriateeconomic unit are:

1. Similarities and differences in types oftrades or businesses,

2. The extent of common control,

3. The extent of common ownership,

4. Geographical location, and

5. Interdependencies between theactivities.

Example. You have a significant ownershipinterest in a bakery and a movie theater inBaltimore and in a bakery and a movietheater in Philadelphia. Depending on all

the relevant facts and circumstances, theremay be more than one reasonable methodfor grouping your activities. For instance,the following groupings may or may not bepermissible: a single activity, a movietheater activity and a bakery activity, aBaltimore activity and a Philadelphiaactivity, or four separate activities.

Once you choose a grouping underthese rules, you must continue using thatgrouping in later tax years unless amaterial change in the facts andcircumstances makes it clearlyinappropriate.


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The IRS may regroup your activities ifyour grouping fails to reflect one or moreappropriate economic units and one of theprimary purposes of your grouping is tocircumvent the passive activity limitations.

Limitation on grouping certainactivities.The following activities maynot be grouped together:

1. A rental activity with a trade orbusiness activity unless the activities beinggrouped together make up an appropriateeconomic unit, and

a. The rental activity is insubstantialrelative to the trade or business activity orvice versa, or

b. Each owner of the trade or businessactivity has the same proportionateownership interest in the rental activity. Ifso, the portion of the rental activityinvolving the rental of property to be usedin the trade or business activity may begrouped with the trade or business activity.

2. An activity involving the rental of realproperty with an activity involving therental of personal property (except for

personal property provided in connectionwith the real property or vice versa).

3. Any activity with another activity in adifferent type of business and in which youhold an interest as a limited partner or as alimited entrepreneur (as defined in section464(e)(2)), if that other activity engages inholding, producing, or distributing motionpicture films or videotapes; farming;leasing section 1245 property; or exploringfor (or exploiting) oil and gas resources orgeothermal deposits.

Activities conducted throughpartnerships or S corporations, andC corporations subject to section 469.Once a partnership or corporationdetermines its activities under these rules,a partner or shareholder may use theserules to group those activities with eachother, with activities conducted directly bythe partner or shareholder, and withactivities conducted through otherpartnerships and corporations. A partner orshareholder may not treat as separateactivities those activities grouped togetherby the partnership or corporation.

Partial disposition of an activity.Youmay treat the disposition of substantially allof an activity as a separate activity if youcan prove with reasonable certainty:

1. The prior year unallowed losses, ifany, allocable to the part of the activitydisposed of, and

2. The net income or loss for the year ofdisposition allocable to the part of theactivity disposed of.

Dispositions

Unallowed passive activity credits, unlikeunallowed passive activity losses, are notallowable when you dispose of yourinterest in an activity. However, you mayelect to increase the basis of the creditproperty by the amount of the originalbasis reduction of the property to theextent that the credit has not been allowedby reason of the passive activity rules. Tomake the election, complete Part VI ofForm 8582-CR. No basis adjustment maybe elected on a partial disposition of yourinterest in a passive activity.

Mr. Jones received a Schedule K-1 from the partnership. The low-income housing credit is shown on line 13(b)(3) of Schedule K-1because the property was placed in service after 1989 (post-1989 low-income housing credit).

Example of How To Complete Form 8582-CRIn 1994, John Jones purchased an interest as a limited partner in Partnership A. Mr. Jones is married and files a joint return. During1994, the partnership placed in service a residential rental building that qualified for the low-income housing credit.

Schedule K-1:

Mr. Joness net passive income for 1994 is zero.

See Partners Instructions forSchedule K-1 (Form 1065).

13aCredit for income tax w ithheld13a

Low-income housing credit:b

b(1)(1) From section 42(j)(5) partnerships for property placed in

service before 1990b(2)(2) Other than on line 13b(1) for property placed in service before 1990

Form 8586, line 5

b(3)(3) From section 42(j)(5) partnerships for property placed in

service after 1989b(4)(4) Other than on line 13b(3) for property placed in service after 1989

Qualified rehabilitation expenditures related to rental real estate

activities (see instructions)

cCredits

13c

Credits (other than credits shown on lines 13b and 13c) related

to rental real estate activities (see instructions)

d See Partners Instructions forSchedule K-1 (Form 1065).13d

Credits related to other rental activities (see instructions)e 13e

Other credits (see instructions)14 14

Schedule K-1 (Form 1065) 1994For Paperwork Reduction Act Notice, see Instructions for Form 1065.

Cat. No. 11394R

12,000


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Form 8582-CR, Passive Activity Credit Limitations.

Step 1.Mr. Jones will need the following forms to report the low-income housing credit:

Mr. Jones follows the instructions for line 13(b) of Schedule K-1 and enters the employer identification number (EIN) of thepartnership and the $12,000 low-income housing credit on line 5 of Form 8586, and completes line 6.

Form 8586, Low-Income Housing Credit.

OMB No. 1545-0984

Form 8586 Low-Income Housing Credit


AttachmentSequence No. 36b Attach to your return.

Name(s) shown on return Identifying number

Current Year Low-Income Housing Credit (See instructions.)

Number of Forms 8609 attached 12Eligible basis of building(s) (total from attached Schedule(s) A (Form 8609), line 1)2

3aQualified basis of low-income building(s) (total from attached Schedule(s) A (Form 8609), line 3)3a

b Has there been a decrease in the qualified basis of any building(s) since the close of the precedingtax year? Yes No If Yes, enter the building identification number (BIN) of thebuilding(s) that had a decreased basis. If more space is needed, attach a schedule to list the BINs.

(iv)(iii)(ii)(i)4Current year credit (total from attached Schedule(s) A (Form 8609), see instructions)4

If you are a Then enter total of current year housing credit(s) from

a Shareholderb Partnerc Beneficiary

Schedule K-1 (Form 1120S), lines 12b(1) through (4)Schedule K-1 (Form 1065), lines 13b(1) through (4)Schedule K-1 (Form 1041), line 13

5 Credits from flow-through entities (if from more than one entity, see instructions):

5

6 Total current year credit. Add lines 4 and 5. (See instructions to see if you complete Part II or file Form 3800.) 6

Part I

EIN of flow-through entity

7 Passive activity credit or total current year credit for 1994 (see instructions) 7

John and Mary Jones 123-00-4567

10 5566650 12,000

12,000

Step 2.Line 7 of Form 8586 asks for the passive activity credit for 1994. The amount is figured on Form 8582-CR and theworksheets.

Worksheet 3 for Lines 3a and 3b

Total. Enter on lines 3a and 3b of Form 8582-CR

Worksheet 3 of Form 8582-CR is used for post-1989 low-income housing credits.

(keep for your records)Prior Year

Unallowed CreditsCurrent Year

CreditsTotal Credits

FromFormName of Activity

(c) Add cols. (a) and (b)(b) Credit line 3b(a) Credit line 3a

12,000Partnership A

12,000

8586


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Page 7

Mr. Jones follows the instructions for Worksheet 3 and enters the total credits from column (a) of that worksheet on line 3a of Form8582-CR. He enters the total credits on line 3c and completes lines 5 through 7 of the form. Mr. Jones can skip Parts II and III and goto Part IV because the only credit he has is from a post-1989 low-income housing rental real estate activity. He must also complete theworksheet for line 35 in the instructions to get the amount to enter on line 35 of the form.

OMB No. 1545-1034Passive Activity Credit LimitationsForm8582-CR See separate instructions.


AttachmentSequence No. 88a Attach to Form 1040 or 1041.

Identifying numberName(s) shown on return

1994 Passive Activity CreditsCaution: If you have credits from a publicly traded partnership, seePublicly Traded Partnerships (PTPs)on page 14

of the instructions.

Credits From Rental Real Estate Activities With Active Participation (Other Than RehabilitationCredits and Low-Income Housing Credits) (See Lines 1a through 1c on page 9 of the instructions.)

1aCredits from Worksheet 1, column (a)1a

1bb Prior year unallowed credits from Worksheet 1, column (b)

1cAdd lines 1a and 1bc

Rehabilitation Credits from Rental Real Estate Activities and Low-Income Housing Credits forProperty Placed in Service Before 1990 (or From Pass-Through Interests Acquired Before 1990)(See Lines 2a through 2c on page 9 of the instructions.)

2a2a Credits from Worksheet 2, column (a)

2bb Prior year unallowed credits from Worksheet 2, column (b)

c Add lines 2a and 2b 2c

Low-Income Housing Credits for Property Placed in Service After 1989 (See Lines 3a through3c on page 9 of the instructions.)

3aCredits from Worksheet 3, column (a)3a3bPrior year unallowed credits from Worksheet 3, column (b)b

3cAdd lines 3a and 3bc

All Other Passive Activity Credits (See Lines 4a through 4c on page 9 of the instructions.)

4aCredits from Worksheet 4, column (a)4a4bPrior year unallowed credits from Worksheet 4, column (b)b

4cAdd lines 4a and 4bc5Add lines 1c, 2c, 3c, and 4c56Enter the tax attributable to net passive income (see instructions)6

7 Subtract line 6 from line 5. If line 6 is more than or equal to line 5, enter -0- and see the instructions 7

Part IJohn and Mary Jones 123-00-4567

12,000

-0-

12,000

12,000

12,000

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

Note: Complete Part IV if you have an amount on line 3c. Otherwise, go to Part V.

31If you completed Part III, enter the amount from line 19. Otherwise, subtract line 16 from line 731

Enter the amount from line 3032 32

33Subtract line 32 from line 31. If zero, enter -0- here and on line 3633

Enter the smaller of line 3c or line 3334 34

35Tax attributable to the remaining special allowance (see instructions)35

Enter the smaller of line 34 or line 3536 36

Part IV

12,000

9,900

-0-

9,900

12,000

12,000


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Step 3.After completing Form 8582-CR, Mr. Jones determines his allowed and unallowed credit. Because he has only one type ofcredit from a single passive activity, he does not need to complete Worksheets 5 through 9. His allowed low-income housing credit for1994 is the amount on line 37, or $9,900. His unallowed credit of $2,100 is determined by subtracting the allowed credit on line 37 fromthe total credit on line 5 ($12,000 $9,900).

Step 4.Mr. Jones enters the allowed passive activity credit of $9,900 on line 7 of Form 8586 and completes Part II of that formaccording to the instructions for Form 8586. The unallowed credit of $2,100 is carried forward and used to figure the passive activitycredit allowed for 1995.

Passive Activity Credit Allowed

37 Passive Activity Credit Allowed. Add lines 6, 16, 30, and 36. If you have any credits from apublicly traded partnership, see Publicly Traded Partnerships (PTPs) on page 14 of theinstructions 37

Note: Use Worksheets 5 through 9, whichever apply, to allocate the allowed and unallowed credits

if you have credits from more than one passive activity. Also use the worksheets if you must

allocate the credits because they are reported on different forms.

Part V

9,900

OMB No. 1545-0984

Form 8586 Low-Income Housing Credit


AttachmentSequence No. 36b Attach to your return.

Name(s) shown on return Identifying number

Current Year Low-Income Housing Credit (See instructions.)

Number of Forms 8609 attached 12Eligible basis of building(s) (total from attached Schedule(s) A (Form 8609), line 1)2

3aQualified basis of low-income building(s) (total from attached Schedule(s) A (Form 8609), line 3)3a

b Has there been a decrease in the qualified basis of any building(s) since the close of the precedingtax year? Yes No If Yes, enter the building identification number (BIN) of thebuilding(s) that had a decreased basis. If more space is needed, attach a schedule to list the BINs.

(iv)(iii)(ii)(i)

4Current year credit (total from attached Schedule(s) A (Form 8609), see instructions)4

If you are a Then enter total of current year housing credit(s) from

a Shareholderb Partnerc Beneficiary

Schedule K-1 (Form 1120S), lines 12b(1) through (4)Schedule K-1 (Form 1065), lines 13b(1) through (4)Schedule K-1 (Form 1041), line 13

5 Credits from flow-through entities (if from more than one entity, see instructions):

5

6 Total current year credit. Add lines 4 and 5. (See instructions to see if you complete Part II or file Form 3800.) 6

Part I

EIN of flow-through entity

7 Passive activity credit or total current year credit for 1994 (see instructions) 7

John and Mary Jones 123-00-4567

10 5566650 12,000

12,000

9,900

Line 35 computation:

Line 35.Figure the tax attributable to theremaining special allowance as follows:

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

305,000A. Taxable income

B.

C.

D.

Tax on line A. Use tax table, tax rate schedules, orSchedule D Tax Worksheet (or Schedule D (Form1041)), whichever applies 97,085

E.

Enter $25,000 ($12,500 if married filingseparate return and you and yourspouse lived apart at all times duringthe year) 25,000

F.

Enter amount from line 9 of Form 8582,if any -0-

25,000

G.

Subtract line D from line C

280,000

H.

Subtract line E from line A

I.

Tax on line F. Use tax table, tax rate schedules, orSchedule D Tax Worksheet (or Schedule D (Form1041)), whichever applies 87,185

9,900

J.

Subtract line G from line B

Add lines 16 and 30 of Form 8582-CR and enterthe total -0-

Subtract line I from line H. Tax attributable to theremaining special allowance. Enter the result online 35 of Form 8582-CR 9,900

Mr. Jones completes Part V of Form 8582-CR:


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Specific Instructions

Part I

Current Year Credits

Convert any current year qualifiedexpenditures into credits before beginningWorksheet 1, 2, 3, or 4.

Form 3800, General Business Credit.Enter the credits from line 2 of Form 3800in column (a) of Worksheet 1, 2, 3, or 4. Ifthe credits are from more than one activity

or more than one type of credit, separatethe credits by activity or type beforemaking entries in the worksheets. Forexample, if you have a low-income housingcredit from one activity and a researchcredit from a different activity, enter thelow-income housing credit in column (a) ofWorksheet 2 and make a separate entryfor the research credit in column (a) ofWorksheet 4.

Form 6765, Credit for IncreasingResearch Activities (or for claiming theorphan drug credit).Complete Part I ifyou have an orphan drug credit. Enter theportion of the credit attributable to passiveactivities from line 4 of Form 6765 in

column (a) of Worksheet 4.Form 8586, Low-Income HousingCredit.If you are not required to fileForm 3800, enter the portion of the creditattributable to passive activities credit fromline 6 of Form 8586 in column (a) ofWorksheet 2 or 3.

Form 8834, Qualified Electric VehicleCredit.Enter the credits from line 8 ofForm 8834 in column (a) of Worksheet 1 or4. If the credits are from more than oneactivity, separate the credits by activitybefore making entries in the worksheet.

Form 8844, Empowerment ZoneEmployment Credit.Enter the creditsfrom line 5 of Form 8844 in column (a) of

Worksheet 1 or 4. If the credits are frommore than one activity, separate thecredits by activity before making entries inthe worksheet.

Nonconventional source fuel credit.Figure your credit from passive activitiesfor fuel produced from a nonconventionalsource and enter the credit in column (a) ofWorksheet 4.

See section 29 for more information onthe credit for fuel produced from anonconventional source.

Prior Year Unallowed Credits

In figuring this years passive activity

credit, you must take into account anycredits from passive activities disallowedfor prior years and carried forward to thisyear.

If you had only one type of prior yearunallowed credit from a single passiveactivity, you can figure your prior yearunallowed credit by subtracting line 37 ofyour 1993 Form 8582-CR from line 5 ofyour 1993 Form 8582-CR. Otherwise, yourprior year unallowed credits are theamounts shown in column (b) of Worksheet9 in the 1993 Instructions for Form8582-CR. Enter the prior year unallowed

credits in column (b) of Worksheet 1, 2, 3,or 4, whichever apply.

1994 Passive Activity Credits

Lines 1a through 1c.Individuals andqualifying estates that actively participatedin rental real estate activities (other thanrental real estate activities withrehabilitation credits or low-incomehousing credits) should include the creditsfrom these activities on lines 1a through1c. Use Worksheet 1 to figure the amountsto enter on lines 1a and 1b.

See Special Allowance for CreditsFrom Rental Real Estate Activities onpage 3.

Caution: Include the credits in Worksheet4 and on lines 4a and 4b, but not on lines1a and 1b, if you were married filing aseparate return and lived with your spouseat any time during the year, even if youactively participated.

Caution: You may take credits that arosein a prior tax year (other than low-incomehousing and rehabilitation credits) underthe special allowance only if you activelyparticipated in the rental real estate activityfor both that prior year and this year. If youdid not actively participate for both years,include the credits in Worksheet 4 and onlines 4a and 4b, but not in Worksheet 1 oron lines 1a and 1b.

Lines 2a through 2c.Individuals,including limited partners, and qualifyingestates who had rehabilitation credits fromrental real estate activities or low-incomehousing credits for property placed inservice before 1990 should include thecredits from those activities on lines 2aand 2b.

However, if you have low-incomehousing credits for property placed inservice after 1989, include those credits onlines 3a and 3b instead of lines 2a and 2b.If you held an indirect interest in theproperty through a partnership,S corporation, or other pass-through entity,use lines 3a and 3b only if you alsoacquired your interest in the pass-throughentity after 1989.

Caution: Include the credits in Worksheet4 and on lines 4a and 4b, but not on lines2a, 2b, 3a, and 3b, if you were marriedfiling a separate return and lived with yourspouse at any time during the year.

Lines 3a through 3c.Individuals,including limited partners, and qualifyingestates who had low-income housingcredits from rental real estate activities forproperty placed in service after 1989,include those credits on lines 3a through3c instead of lines 2a through 2c. If youheld an indirect interest in the propertythrough a partnership, S corporation, orother pass-through entity, use lines 3athrough 3c only if you also acquired yourinterest in the pass-through entity after1989.

Lines 4a through 4c.Individuals shouldinclude on lines 4a through 4c credits frompassive activities that were not entered onlines 1a through 1c, lines 2a through 2c, orlines 3a through 3c. Trusts should include

credits from ALL passive activities on lines4a through 4c.

Line 6.If line 3 of Form 8582 shows netincome, or if you did not complete Form8582 because you had net passiveincome, you will have to figure the tax onthe net passive income. If you have anoverall loss on an entire disposition of yourinterest in a passive activity, reduce netpassive income, if any, on line 3 of Form8582 to the extent of the loss (but notbelow zero) and use only the remaining netpassive income in the computation below.

If you had a net passive activity loss, enterzero on line 6 and go on to line 7.

Figure the tax on net passive income asfollows:

A. Taxable income including netpassive income

B. Tax on line A. Use tax table, tax rateschedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

C. Taxable income without netpassive income

D. Tax on line C. Use tax table, tax rateschedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

E. Subtract line D from line B and enter

the result on line 6 of Form 8582-CRNote: When using taxable income in theabove computation, it is not necessary torefigure items that are based on apercentage of adjusted gross income.

Line 7.If line 7 is zero because the taxon the net passive income on line 6 isgreater than your credits from passiveactivities on line 5, all your credits frompassive activities are allowed. In this case,enter the amount from line 5 on line 37and report the credits on the form younormally use. Do not complete Worksheets5 through 9.

Part IILine 9.Married persons filing separatereturns who lived apart at all times duringthe year should enter $75,000 on line 9instead of $150,000. Married persons filingseparate returns who lived together at anytime during the year are not eligible tocomplete Part II.

Line 10.To figure modified adjustedgross income for this line, combine all ofthe amounts you would use to figureadjusted gross income, except do not takeinto account:

Any passive activity loss as defined insection 469(d)(1),

Rental real estate losses allowed under

section 469(c)(7) to real estateprofessionals (defined under ActivitiesThat Are Not Passive Activities onpage 2),

Any taxable social security or equivalentrailroad retirement benefits,

Any deductible contributions to an IRAor certain other qualified retirement plansunder section 219,

The deduction allowed under section164(f) for one-half of self-employmenttaxes, or


10/14

Page 10

The exclusion from income of interestfrom series EE U.S. savings bonds used topay higher education expenses.

An overall loss from an entire dispositionof an interest in a passive activity is takeninto account when figuring modifiedadjusted gross income if you do not haveany net income after combining net incomeand losses from all other passive activities(i.e., line 3 of Form 8582 is a loss or zero).If you do have net income when youcombine all of the net losses and netincome from all other passive activities, the

overall loss from the activity disposed of ispassive to the extent of the net incomeand nonpassive to the extent that itexceeds the net income. Take into accountthe nonpassive portion of the loss whenfiguring modified adjusted gross income.

Include any overall net income frompassive activities from publicly tradedpartnerships, any net income fromsignificant participation passive activities,and any other net passive income treatedas nonpassive income under TemporaryRegulations section 1.469-2T(f) orRegulations section 1.469-2(f).

Line 12.Do not enter more than $12,500on line 12 if you are married filing aseparate return and you and your spouselived apart at all times during the year.Married persons filing separate returns who

lived together at any time during the yearare not eligible to complete Part II.

Line 15.Figure the tax attributable to theamount on line 14 as follows:

A. Taxable income

B. Tax on line A. Use tax table, tax rateschedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

C. Enter amount from line Aabove

D. Enter amount from line 14 ofForm 8582-CR

E. Subtract line D from line C

F. Tax on line E. Use tax table, tax rateschedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

G. Subtract line F from line B and enterthe result on line 15 of Form 8582-CR

Note: When using taxable income in theabove computation, it is not necessary torefigure items that are based on apercentage of adjusted gross income.

Lines 1a and 1b.Use Worksheet 1 to figure the amounts to enter on lines 1a and 1b. Line 1a is used for credits from rental realestate activities with active participation for the current year and line 1b is used for prior year unallowed credits from rental real estateactivities with active participation in both the prior year in which the credit arose and the current year. See instructions for SpecialAllowance for Credits From Rental Real Estate Activities on page 3 for a definition of active participation.

After you complete the worksheet below, enter the totals of columns (a) and (b) on the corresponding lines of Form 8582-CR andthen complete line 1c.

Note: Rehabilitation credits from rental real estate activities and low-income housing credits should be entered in Worksheet 2 or 3,whichever applies, even if you actively participated in the activity.

(keep for your records)Worksheet 1 for Lines 1a and 1bPrior Year





Totals. Enter on lines 1a and 1b of Form 8582-CR

Lines 2a and 2b.Use Worksheet 2 to figure the amounts to enter on lines 2a and 2b. Line 2a is used for rehabilitation credits andlow-income housing credits from rental real estate activities for the current year and line 2b is used for prior year unallowed credits fromthose activities. However, use Worksheet 3 instead of Worksheet 2 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, useWorksheet 3 only if you also acquired your interest in the pass-through entity after 1989. Use this worksheet if you do not meet bothrequirements.


(keep for your records)Worksheet 2 for Lines 2a and 2bPrior Year







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Page 11

Lines 3a and 3b.Use Worksheet 3 to figure the amounts to enter on lines 3a and 3b for low-income housing credits for propertyplaced in service after 1989. If you held an indirect interest in the property through a partnership, S corporation, or other pass-throughentity, use Worksheet 3 only if you also acquired your interest in the pass-through entity after 1989. Line 3a is used for the current yearcredits and line 3b is used for prior year unallowed credits for those activities.

Worksheet 3 for Lines 3a and 3b

Total. Enter on lines 3a and 3b of Form 8582-CR


(keep for your records)Prior Year





Lines 4a and 4b.Use Worksheet 4 to figure the amounts to enter on lines 4a and 4b. Line 4a is used for credits from all other passiveactivities for the current year and line 4b is used for prior year unallowed credits from those activities.

After you complete the worksheet below, enter the totals of columns (a) and (b) on the corresponding lines of Form 8582-CR andthen complete line 4c of Form 8582-CR.

(keep for your records)Worksheet 4 for Lines 4a and 4b

Prior YearUnallowed CreditsCurrent YearCredits Total CreditsFromFormName of Activity



Part IIILine 21.Married persons filing separatereturns who lived apart at all times during

the year should enter $125,000 on line 21instead of $250,000. Married persons filingseparate returns who lived together at anytime during the year are not eligible tocomplete Part III.

Skip lines 21 through 26 if youcompleted Part II of this form and yourmodified adjusted gross income on line 10in Part II was $100,000 or less ($50,000 orless if married filing separately and youlived apart from your spouse for the entireyear). If this was the case, enter theamount from line 15 on line 27.

Line 24.Do not enter more than $12,500on line 24 if you are married filing aseparate return and you and your spouse

lived apart at all times during the year.Married persons filing separate returns wholived together at any time during the yearare not eligible to complete Part III.

Line 27.Figure the tax attributable to theamount on line 26 as follows:

A. Taxable income

B. Tax on line A. Use tax table, tax rate

schedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

C. Enter amount from line Aabove

D. Enter amount from line 26 ofForm 8582-CR


F. Tax on line E. Use tax table, tax rateschedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

G. Subtract line F from line B and enterthe result on line 27 of Form 8582-CR

Note: When using taxable income in theabove computation, it is not necessary torefigure items that are based on a

percentage of adjusted gross income.

Part IVNote: Married persons filing separatereturns who lived together at any timeduring the year are not eligible to completePart IV.

Line 35.Figure the tax attributable to theremaining special allowance as follows:

A. Taxable income

B. Tax on line A. Use tax table, tax rate

schedules, or Schedule D TaxWorksheet (or Schedule D (Form1041)), whichever applies

C. Enter $25,000($12,500 if marriedfiling separate returnand you and yourspouse lived apart atall times during theyear)

D. Enter amount fromline 9 of Form 8582,if any


F. Subtract line E from line A

G. Tax on line F. Use tax table, tax rateschedules, or Schedule D TaxWorksheet (or Schedule D (Form

1041)), whichever appliesH. Subtract line G from line B

I. Add lines 16 and 30 of Form 8582-CRand enter the total

J. Subtract line I from line H. Taxattributable to the remaining specialallowance. Enter the total on line 35 ofForm 8582-CR

Note: When using taxable income in theabove computation, it is not necessary torefigure items that are based on apercentage of adjusted gross income.


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Part V

Computation of Passive ActivityCredit Allowed

Line 37.If you have only one type ofcredit, the amount on line 37 is the creditallowed for the year. Enter this amount onthe form where it is normally reported.Your unallowed credit would be line 5minus line 37.

Use Worksheets 5 through 9, whicheverapply, below and on page 13, to allocate

the allowed and unallowed credits if youhave credits from more than one activity.Also use the worksheets if you mustallocate the credits because they arereported on different forms.

Keep a record of each unallowed creditand the activity to which it belongs so youcan claim the credit if it becomes allowablein a future year.

Part VIElection To IncreaseBasis of Credit PropertyLine 38.Check the box if the corporationelects to increase the basis of creditproperty it used in a passive activity by theunallowed credit that reduced thepropertys basis. The election is available

for a fully taxable disposition of an entireinterest in an activity for which a basisadjustment was made as a result ofplacing in service property for which acredit was taken. On such a disposition,

you may elect to increase the basis of thecredit property immediately before thedisposition (by an amount no greater thanthe amount of the original basis reduction)to the extent that the credit had not beenpreviously allowed because of the passivecredit limitations. The amount of theunallowed credit that may then be appliedagainst tax is reduced by the amount ofthe basis adjustment.

No basis adjustment may be elected ona partial disposition of your interest in apassive activity or if the disposition is not

fully taxable. The amount of any unallowedcredit, however, remains available to offsetthe tax attributable to net passive and netactive income.

Instructions for Worksheet 5

Complete Worksheet 5 if you have an amount on line 1c of Form 8582-CR and you have credits from more than one activity.

Column (a).Enter the credits from Worksheet 1, column (c), in column (a) of this worksheet.

Column (b).Divide each of the credits shown in column (a) by the total of the credits in column (a) and enter the ratio for each of theactivities in column (b). The total of all ratios should equal 1.00.

Column (c).Multiply line 16 of Form 8582-CR by the ratios in column (b) and enter the result in column (c). If the total of this columnis the same as the total of column (a), all of the credits for the activities in column (a) of this worksheet are allowed. Report them on theforms you normally report them on and complete Worksheet 6 if you have credits shown in Worksheet 2. Also complete Worksheet 7 or8 if you have credits shown in Worksheet 3 or 4. If the total of column (a) is more than the total of column (c), complete column (d).

Column (d).Subtract column (c) from column (a) and enter the result in this column. Also enter the name of each activity and the formthe credit should be reported on in Worksheet 8 and enter the amount from column (d) of this worksheet in column (a) of Worksheet 8.Also complete Worksheet 6 or 7 if you have credits on line 2c or 3c of Form 8582-CR.

(keep for your records)Worksheet 5 for Credits on Line 1a or 1b

(b) Ratios(See

instructions.)

(c) SpecialAllowance (Seeinstructions.)

(d) Subtractcolumn (c) from

column (a)

(a) Credits (Seeinstructions.)

Form To BeReported on

Name of Activity

Totals 1.00

Instructions for Worksheet 6

Complete Worksheet 6 if you have credits on line 2c of Form 8582-CR and you have credits from more than one activity.


Column (b).Divide each of the individual credits shown in column (a) by the total of all the credits in column (a) and enter the ratiosfor each of the activities in column (b). The total of all the ratios should equal 1.00.

Column (c).Multiply line 30 of Form 8582-CR by the ratios in column (b) and enter the result in column (c). If the total of this columnis the same as the total of column (a), all the credits for the activities in column (a) of this worksheet are allowed. Report them on theforms you normally report them on and complete Worksheet 7 or 8 if you have credits shown in Worksheet 3 or 4 or amounts in column(d) of Worksheet 5. If the total of column (a) is more than the total of column (c), complete column (d).

Column (d).Subtract column (c) from column (a) and enter the result in this column. Also enter the name of each activity and the formthe credit should be reported on in Worksheet 8 and enter the amount from column (d) of this worksheet in column (a) of Worksheet 8.



column (a)


(b) Ratios(See

instructions.)(a) Credits (Seeinstructions.)Form To BeReported onName of Activity

1.00Totals


13/14

Page 13

Instructions for Worksheet 8Complete Worksheet 8 if you have credits on line 4c of Form 8582-CR from more than one activity or reported on different forms, oryou have amounts in column (d) of Worksheets 5, 6, or 7.

Column (a).Enter the amounts, if any, from column (c) of Worksheet 4 and column (d) of Worksheets 5, 6, and 7.Column (b).Divide each of the credits in column (a) by the total of all the credits in column (a). The total of all the ratios should equal1.00.

Column (c).Complete the following computation:

A. Enter line 5 of Form 8582-CR

B. Enter line 37 of Form 8582-CR

C. Subtract line B from line A

Multiply line C by the ratios in column (b) and enter the results in column (c). Complete Worksheet 9 to determine the credits allowedfor 1994.

(keep for your records)Worksheet 8Allocation of Unallowed Credits

(c) Unallowed Credits(See instructions.)

(b) Ratios (Seeinstructions.)



Name of Activity

1.00Totals

Instructions for Worksheet 9Column (a).Enter all the activities shown in Worksheet 8. The credits entered in column (a) of this worksheet should be the creditsshown in column (c) of Worksheets 1, 2, 3, and 4 for the activities listed in Worksheet 8.

Column (b).Enter the amounts from column (c) of Worksheet 8 in this column. These are your unallowed credits for 1994.

Column (c).Subtract column (b) from column (a). These are the credits allowed for 1994. The amounts in this column should bereported on the forms you normally use to report the credits.

(keep for your records)Worksheet 9Allowed Credits

(c) Allowed Credits(See instructions.)

(b) Unallowed Credits(See instructions.)


Form To BeReported onName of Activity

Totals

Instructions for Worksheet 7Complete Worksheet 7 if you have credits on line 3c of Form 8582-CR and you have credits from more than one activity.


Column (b).Divide each of the individual credits shown in column (a) by the total of all the credits in column (a) and enter the ratiosfor each of the activities in column (b). The total of all the ratios should equal 1.00.

Column (c).Multiply line 36 of Form 8582-CR by the ratios in column (b) and enter the result in column (c). If the total of this columnis the same as the total of column (a), all the credits for the activities in column (a) of this worksheet are allowed. Report them on theforms you normally report them on and complete Worksheet 8 if you have credits shown in Worksheet 4 or amounts in column (d) ofWorksheet 5 or 6. If the total of column (a) is more than the total of column (c), complete column (d).Column (d).Subtract column (c) from column (a) and enter the result in this column. Also enter the name of each activity and the formthe credit should be reported on in Worksheet 8 and enter the amount from column (d) of this worksheet in column (a) of Worksheet 8.



column (a)


(b) Ratios(See

instructions.)



Name of Activity

1.00Totals


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Page 14

Reporting Allowed Credits on YourTax Return

Form 3800.Enter on line 4 of Form 3800the total passive activity general businesscredit allowed from column (c) ofWorksheet 9.

Form 6765.Enter any allowed orphandrug credit on line 4 and identify it asPAC on Form 6765. Also complete PartII of that form.

Form 8586.If you are not required to fileForm 3800, enter on line 7 of Form 8586

any allowed low-income housing credit.Form 8834.Enter on line 10 of Form8834 the passive activity qualified electricvehicle credit allowed from column (c) ofWorksheet 9.

Form 8844.Enter on line 7 of Form 8844the passive activity empowerment zoneemployment credit allowed from column (c)of Worksheet 9.

Nonconventional source fuel credit.Ifyou have an allowed passive activity creditfor fuel produced from a nonconventionalsource, see section 29 for limitations andadjustments to the credit. Attach aseparate schedule to your tax returnshowing how you figured the credit. If you

have both passive and nonpassive credits,combine the credits before applying thelimitations and adjustments. Report thecredit on the line specified by theinstructions for the tax return you file.

Publicly Traded Partnerships(PTPs)A PTP is a partnership whose interests aretraded on an established securities marketor are readily traded on a secondarymarket (or its substantial equivalent).

An established securities marketincludes any national securities exchangeand any local exchange registered under

the Securities Exchange Act of 1934 orexempted from registration because of thelimited volume of transactions. It alsoincludes any over-the-counter market.

A secondary market is generallyindicated by the existence of a personstanding ready to make a market in theinterest. An interest is treated as readilytradable if the interest is regularly quotedby persons, such as brokers or dealers,who are making a market in the interest.

The substantial equivalent of asecondary market exists where there is noidentifiable market maker, but the holder ofan interest has a readily available, regular,and ongoing opportunity to sell or

exchange his or her interest through apublic means of obtaining or providinginformation of offers to buy, sell, orexchange interests. Similarly, thesubstantial equivalent of a secondarymarket exists where the prospectivebuyers and sellers have the opportunity tobuy, sell, or exchange interests in atimeframe and with the regularity and

continuity that the existence of a marketmaker would provide.

Credits From PTPs

A credit from a passive activity heldthrough a PTP is allowed to the extent ofthe tax attributable to net passive incomefrom that partnership. In addition,rehabilitation credits and low-incomehousing credits from rental real estateactivities held through PTPs are allowed tothe extent of any special allowance thatremains after taking into account losses

and credits from rental real estate activitiesnot owned through PTPs. See SpecialAllowance for Credits From Rental RealEstate Activities on page 3.

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

Computation of Passive ActivityCredits Allowed From PTPs

Complete Steps 1 and 2 only if you havenet passive income from a PTP withpassive activity credits (including prior yearunallowed credits).

Step 1.Figure the tax attributable to netpassive income from each PTP withpassive activity credits (including prior yearunallowed credits) by following the stepsshown in the worksheet in the line 6instructions. Complete a separate taxcomputation for each PTP with net passiveincome.

Step 2.Passive activity credits from eachPTP are allowed to the extent of the taxattributable to net passive income fromthat same PTP. Credits in excess of thetax attributable to net passive income maybe allowed under one or more stepsbelow.

Complete Steps 3 through 5 only if you

have rehabilitation credits from rental realestate activities from a PTP, low-incomehousing credits for property placed inservice before 1990 from a PTP, orlow-income housing credits from a PTP inwhich you acquired your interest before1990 (regardless of the date placed inservice) (including prior year unallowedcredits).

Step 3.Reduce rehabilitation credits fromrental real estate activities from each PTP,low-income housing credits for propertyplaced in service before 1990 from eachPTP, and any low-income housing creditsfrom each PTP in which you acquired yourinterest before 1990 (regardless of the date

placed in service) (including prior yearunallowed credits) to the extent of the taxattributable to net passive income fromthat PTP, which was figured in Step 1.

Step 4.Before beginning this step, youmust complete Form 8582-CR if you haveany passive credits that are not from PTPs.Subtract the total of lines 16, 30, and 36, ifany, of Form 8582-CR, from the amounton line 27 of Form 8582-CR, to figure the

tax attributable to the special allowanceavailable for the credits in Step 3.

If your only passive credits are fromPTPs, complete lines 21 through 27 ofForm 8582-CR as a worksheet. Theamount on line 27 is the tax attributable tothe special allowance available for thecredits in Step 3.

Step 5.Rehabilitation credits from rentalreal estate activities of each PTP,low-income housing credits for propertyplaced in service before 1990 by eachPTP, and any low-income housing credits

from a PTP in which you acquired yourinterest before 1990 (regardless of the dateplaced in service) allowed under thespecial allowance are the smaller of thetotal credits from Step 3 or the amountfigured in Step 4. If Step 4 is smaller thanStep 3, allocate the amount in Step 4 prorata to the credits from each PTP inStep 3.

Complete Steps 6 through 8 only if youhave low-income housing credits forproperty placed in service after 1989 froma PTP in which you also acquired yourinterest after 1989 (including prior yearunallowed credits).

Step 6.Reduce low-income housing

credits for property placed in service after1989 from a PTP in which you alsoacquired your interest after 1989 (includingprior year unallowed credits) to the extentof the tax attributable to net passiveincome from that PTP, which was figuredin Step 1.

Step 7.Before beginning this step, youmust complete Form 8582-CR if you haveany passive credits that are not from PTPs.Subtract the sum of the credits allowed inStep 5 above and line 36 of Form 8582-CRfrom the amount on line 35 of Form8582-CR to figure the tax attributable tothe special allowance available for thecredits in Step 6.

If your only passive credits are fromPTPs, complete the steps shown in theworksheet in the line 35 instructions.Subtract the credits allowed in Step 5above from the tax figured on line J of thatworksheet. The result is the tax attributableto the special allowance available for thecredits in Step 6.

Step 8.Low-income housing creditsallowed under the special allowance forproperty placed in service after 1989 froma PTP in which you also acquired yourinterest after 1989 are the smaller of thetotal credits from Step 6 or the amountfigured in Step 7. If Step 7 is smaller thanStep 6, allocate the amount in Step 7 prorata to the credits from each PTP in

Step 6.Step 9.Add Steps 2, 5, and 8. These arethe total credits allowed from passiveactivities of PTPs.

Step 10.Figure the allowed andunallowed credits from each PTP. Reportthe allowed credits on the form normallyused. Keep a record of the unallowedcredits to be carried forward to 1995.

Printed on recycled paper

us internal revenue service: i8582cr--1994

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