From 8582, Passive Activity Loss Limitations, is filed by individuals, estates, and trusts who have passive activity deductions (including prior year unallowed losses).
Lacerte will automatically generate Form 8582 based on your entries for Schedules C, E, and F, as well as passthrough K-1s.
This article will help you:
- Force Form 8582 to print,
- Enter credits and carryovers for Form 8582-CR,
- Mark a final year or disposed activity to allow prior year losses,
- Understand the treatment of self-rental income, and
- Understand the exception for rental real estate with active participation.
To force Form 8582 for one client only:
- Go to Screen 14.1, SS Benefits, Alimony, Miscellaneous Income.
- Scroll down to the Passive Activity Overrides (8582) section.
- Enter a 2 in Form 8582: 1=when applicable, 2=force (code 27).
To force Form 8582 for all client files:
- Go to Settings > Options.
- Select the Tax Return tab.
- Scroll down to the Federal Tax Options section.
- Select Force from the option Form 8582 dropdown menu.
How do I generate Form 8582-CR?
Lacerte will automatically generate Form 8582-CR for passive activity credits when you have current year credits linked to a passive activity or passive credit carryovers entered.
To enter carryovers for Form 8582-CR:
- Go to Screen 34, General Business and Vehicle Credits.
- Select the Form the carryovers should be linked to.
- Scroll down to the Prior Year Unallowed Credits section.
- If the credit is listed here, enter the amount in the appropriate field. Otherwise, scroll to the Other Passive Credit Carryovers section and select the Credit type from the list.
Asset dispositions and final year activities
Assets and K-1 passthrough entities marked as Disposed and as a Complete Disposition of Passive Activity on the depreciation screen, or FINAL on the K-1 input screen will suppress the 8582 and allow all losses related to the asset and the business it is tied to.
With the prior year losses now free to be used like a non-passive loss, the 8582 calculation of limitations will no longer apply, and the form will be suppressed. In this scenario, it can't be forced because it no longer applies. See Calculating the basis limitation for an individual return in Lacerte.
Special treatment of self-rental income and losses
When reporting Schedule E rental income in Lacerte, the income is treated as passive by default, unless the activity is marked as nonpassive or the Type of Property you select is Self-Rental.
Self-rental income is treated as nonpassive, while any loss reported is treated as passive. These passive losses can be carried forward as prior year unallowed passive loss amounts. These amounts can also be offset by the income from the same activity. Self-rental income can't be used to offset passive losses from other activities.
For more information, see IRS Publication 925.
Exception to filing Form 8582
Per the Form 8582 instructions, Form 8582 is not required if you meet the following exception:
You actively participated in rental real estate activities and you meet all of the following conditions.
- Rental real estate activities with active participation were your only passive activities.
- You have no prior year un-allowed losses from these (or any other passive) activities.
- Your total loss from the rental real estate activities wasn't more than $25,000 ($12,500 if MFS).
- If you are MFS, you lived apart from your spouse all year.
- You have no current or prior year unallowed credits from a passive activity.
- Your MAGI wasn't more than $100,000 (not more than $50,000 if MFS).
- You don't hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust.
If all of the conditions are met, your rental real estate losses are not limited, and you do not need to complete Form 8582.
- Enter losses reported on Schedule E (Form 1040), Supplemental Income and Loss, Part I, line 22, on Schedule E (Form 1040), Part I, Line 23.
- For losses from a partnership or S corporation, enter the amount of the allowable loss from Schedule K-1, in Schedule E (Form 1040), Part II, column (f).
- Enter losses reported on Line 32 of Form 4835, Farm Rental Income and Expenses, on Form 4835, Line 34c.