Question

Problem 4-12
Passive Loss Limitations (LO 4.8)

Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2018, his share of the loss from the limited partnership was $11,000, and his loss from the rental condo was $17,000. Assume Clifford's modified adjusted gross income is $122,000 for 2018, he has no prior year unallowed losses from either activity, and he and his wife will file a joint return.

Complete Form 8582 below.

Note:

• If an amount box does not require an entry or the answer is zero, enter "0".
• If required, use the minus sign to enter a "loss" as a negative number on the lines 1d, 3d and 4. However, per the instructions on the tax return, enter all numbers in Part II as positive amounts.

Form 8582 Department of the Treasury Internal Revenue Service (99) Passive Activity Loss Limitations ►See separate instructions. ► Attach to Form 1040 or Form 1041. ► Go to www.irs.gov/Form8582 for instructions and the latest information. OMB No. 1545-1008 2018 Attachment Sequence No. 88 Name(s) shown on return Clifford Johnson Identifying number Part I 2018 Passive Activity Loss Caution: Complete Worksheets 1, 2, and 3 before completing Part I. Rental Real Estate Activities With Active Participation (For the definition of active participation, see Special Allowance for Rental Real Estate Activities in the instructions.) 1a Activities with net income (enter the amount from Worksheet 1, column (a)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a b Activities with net loss (enter the amount from Worksheet 1, column (b)) 1b ( ) c Prior years' unallowed losses (enter the amount from Worksheet 1, column (c)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1c ( ) d Combine lines 1a, 1b, and 1c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1d Commercial Revitalization Deductions From Rental Real Estate Activities 2a Commercial revitalization deductions from Worksheet 2, column (a) . . . 2a ( ) b Prior year unallowed commercial revitalization deductions from Worksheet 2, column (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b ( ) c Add lines 2a and 2b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2c ( ) All Other Passive Activities 3a Activities with net income (enter the amount from Worksheet 3, column (a)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a ( ) b Activities with net loss (enter the amount from Worksheet 3, column (b)) 3b ( ) c Prior years' unallowed losses (enter the amount from Worksheet 3, column (c)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c ( ) d Combine lines 3a, 3b, and 3c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3d 4 Combine lines 1d, 2c, and 3d. If this line is zero or more, stop here and include this form with your return; all losses are allowed, including any prior year unallowed losses entered on line 1c, 2b, or 3c. Report the losses on the forms and schedules normally used 4 If line 4 is a loss and:     • Line 1d is a loss, go to Part II.                                        • Line 2c is a loss (and line 1d is zero or more), skip Part II and go to Part III.                                        • Line 3d is a loss (and lines 1d and 2c are zero or more), skip Parts II and III and go to line 15. Caution: If your filing status is married filing separately and you lived with your spouse at any time during the year, do not complete Part II or Part III. Instead, go to line 15. Part II Special Allowance for Rental Real Estate Activities With Active Participation Note: Enter all numbers in Part II as positive amounts. See instructions for an example. 5 Enter the smaller of the loss on line 1d or the loss on line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6 Enter $150,000. If married filing separately, see instructions . . . . . . 6 7 Enter modified adjusted gross income, but not less than zero (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Note: If line 7 is greater than or equal to line 6, skip lines 8 and 9, enter -0- on line 10. Otherwise, go to line 8. 8 Subtract line 7 from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9 Multiply line 8 by 50% (0.50). Do not enter more than $25,000. If married filing separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10 Enter the smaller of line 5 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 If line 2c is a loss, go to Part III. Otherwise, go to line 15. Part III Special Allowance for Commercial Revitalization Deductions From Rental Real Estate Activities Note: Enter all numbers in Part III as positive amounts. See the example for Part II in the instructions. 11 Enter $25,000 reduced by the amount, if any, on line 10. If married filing separately, see instructions 11 12 Enter the loss from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 13 Reduce line 12 by the amount on line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 14 Enter the smallest of line 2c (treated as a positive amount), line 11, or line 13 . . . . . . . . . . . . . 14 Part IV Total Losses Allowed 15 Add the income, if any, on lines 1a and 3a and enter the total . . . . . . . . . . . . . . . . . . . . . . . 15 16 Total losses allowed from all passive activities for 2018. Add lines 10, 14, and 15. See instructions to find out how to report the losses on your tax return . . . . . . . . . . . . . . . . . . . . . . . 16

Answer 1

Form 8582:

Rental Real Estate Activities with Active Participation:

1) a.  

Sr. No.	Particulars	Amount ($)
1) a.	Activities with net income	0
2) b.	Activities with net loss	17,000
3) c.	Prior years unallowed losses	0
4) d.	Combine line 1) a. 2) b.3) c.	17,000

Commercial revilization deduction from Rental Real Estate Activities:

Sr. No.	Particulars	Amount ($)
2) a.	Commercial revilization deductions from worksheet 2	0
2) b.	Prior year unallowed commercial revilization deductions	0
3) c.	Combine 2) a. 2) b.	0

All other Passive Activities:

Sr. No.	Particulars	Amount ($)
3) a.	Activities with net income	0
3) b.	Activities with net loss	11,000
3) c.	Prior years unallowed losses	0
3) d.	Combine 3) a. 3) b. 3) c.	11,000

4

Combine 1) a. 2) c. 3) d.

$28,000

Special allowance for Rental Real Estate Activities with Active Participants :

Sr. No.	Particulars	Amount ($)
5	Enter the smaller of the loss on line a) d or the loss on line 4	17,000
6	Enter $150000, if married filing separately, (See Instructions)	1,50,000
7	Enter modified adjusted gross income	1,22,000
8	Subtract line 7 from line 6	28,000
9	Multiply line 8 by 50%	14,000
10	Enter the smaller of line 5 or 9

Total Losses allowed from all passive activities

$14,000