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Tax Exemptions For Disabled Veterans

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Tax Exemptions For Disabled Veterans

Tax exemptions for disabled veterans Index A Additional Medicare Tax, What's New for 2013, What's New, Employment Taxes, Additional Medicare Tax. Tax exemptions for disabled veterans Advertising, Advertising expenses. Tax exemptions for disabled veterans Amortization Anti-abuse rule, Anti-abuse rule. Tax exemptions for disabled veterans Anti-churning rules, Anti-Churning Rules Atmospheric pollution control facilities, Pollution Control Facilities Corporate organization costs, Costs of Organizing a Corporation Dispositions of section 197 intangibles, Disposition of Section 197 Intangibles Experimental costs, Research and Experimental Costs Geological and geophysical costs, Geological and Geophysical Costs How to deduct, How To Deduct Amortization Incorrect amount deducted, Incorrect Amount of Amortization Deducted Partnership organization costs, Costs of Organizing a Partnership Pollution control facilities, Pollution Control Facilities Reforestation costs, Reforestation Costs Reforestation expenses, Reforestation Costs Related person, Related person. Tax exemptions for disabled veterans Research costs, Research and Experimental Costs Section 197 intangibles defined, Section 197 Intangibles Defined Start-up costs, Business Start-Up Costs Starting a businesscosts, Starting a Business Anticipated liabilities, Anticipated liabilities. Tax exemptions for disabled veterans Assessments, local, Taxes for local benefits. Tax exemptions for disabled veterans Assistance (see Tax help) At-risk limits, At-risk limits. Tax exemptions for disabled veterans Attorney fees, Legal and professional fees. Tax exemptions for disabled veterans Awards, Achievement awards. Tax exemptions for disabled veterans , Length-of-service award. Tax exemptions for disabled veterans , Safety achievement award. Tax exemptions for disabled veterans B Bad debts Defined, Definition of Business Bad Debt How to treat, How To Claim a Business Bad Debt Recovery, Recovery of a Bad Debt Types of, Types of Business Bad Debts When worthless, When a Debt Becomes Worthless Bonuses Employee, Bonuses Royalties, Bonuses and advanced royalties. Tax exemptions for disabled veterans Bribes, Bribes and kickbacks. Tax exemptions for disabled veterans Business Assets, Business Assets Books and records, Business books and records, etc. Tax exemptions for disabled veterans Meal expenses, Meals and Entertainment Use of car, Business use of your car. Tax exemptions for disabled veterans , Car and truck expenses. Tax exemptions for disabled veterans Use of home, Business use of your home. Tax exemptions for disabled veterans C Campaign contribution, Political contributions. Tax exemptions for disabled veterans Capital expenses, Capital Expenses, Capital versus Deductible Expenses Capitalization of interest, Capitalization of Interest Car allowance, Car allowance. Tax exemptions for disabled veterans Car and truck expenses, Car and truck expenses. Tax exemptions for disabled veterans Carrying charges, Carrying Charges Charitable contributions, Charitable contributions. Tax exemptions for disabled veterans Circulation costs, newspapers and periodicals, Circulation Costs Club dues, Club dues and membership fees. Tax exemptions for disabled veterans Comments on publication, Comments and suggestions. Tax exemptions for disabled veterans Commitment fees, Commitment fees or standby charges. Tax exemptions for disabled veterans Computer software, Computer software. Tax exemptions for disabled veterans Constant-yield method, OID, Constant-yield method. Tax exemptions for disabled veterans Contested liability, Contested liability. Tax exemptions for disabled veterans Contributions Charitable, Charitable contributions. Tax exemptions for disabled veterans Political, Political contributions. Tax exemptions for disabled veterans Copyrights, Patents, copyrights, etc. Tax exemptions for disabled veterans Cost depletion, Cost Depletion Cost of getting lease, Cost of Getting a Lease, Getting a Lease Cost of goods sold, Cost of Goods Sold Cost recovery, Cost recovery. Tax exemptions for disabled veterans Covenant not to compete, Covenant not to compete. Tax exemptions for disabled veterans Credit card convenience fees, Credit card convenience fees. Tax exemptions for disabled veterans D De minimis OID, De minimis OID. Tax exemptions for disabled veterans Debt-financed distributions, Debt-financed distribution. Tax exemptions for disabled veterans Definitions Business bad debt, Definition of Business Bad Debt Necessary expense, What Can I Deduct? Ordinary expense, What Can I Deduct? Section 197 intangibles, Section 197 Intangibles Defined Demolition expenses, Demolition expenses or losses. Tax exemptions for disabled veterans Depletion Mineral property, Mineral Property Oil and gas wells, Oil and Gas Wells Percentage table, Mines and other natural deposits. Tax exemptions for disabled veterans Timber, Timber Who can claim, Who Can Claim Depletion? Depreciation (see Cost recovery) Development costs, miners, Development Costs Disabled, improvements for, Barrier Removal Costs Drilling and development costs, Intangible Drilling Costs Dues, membership, Club dues and membership fees. Tax exemptions for disabled veterans E Economic interest, Who Can Claim Depletion? Economic performance, Economic performance. Tax exemptions for disabled veterans Education expenses, Education Expenses, Education expenses. Tax exemptions for disabled veterans Elderly, improvements for, Barrier Removal Costs Employee benefit programs, Employee benefit programs. Tax exemptions for disabled veterans Employment taxes, Employment Taxes Entertainment, Reimbursement of Travel, Meals, and Entertainment Excise taxes, Excise taxes. Tax exemptions for disabled veterans Experimentation costs, Research and Experimental Costs, Research and Experimental Costs Exploration costs, Exploration Costs F Fees Commitment, Commitment fees or standby charges. Tax exemptions for disabled veterans Legal and professional, Legal and professional fees. Tax exemptions for disabled veterans Regulatory, Licenses and regulatory fees. Tax exemptions for disabled veterans Tax return preparation, Tax preparation fees. Tax exemptions for disabled veterans Fines, Penalties and fines. Tax exemptions for disabled veterans Forgone, Forgone interest. Tax exemptions for disabled veterans Forgone interest, Forgone interest. Tax exemptions for disabled veterans Form 3115, Form 3115. Tax exemptions for disabled veterans , Changing Your Accounting Method 4562, How To Deduct Amortization 5213, Using the presumption later. Tax exemptions for disabled veterans 8826, Disabled access credit. Tax exemptions for disabled veterans 8885, Health coverage tax credit. Tax exemptions for disabled veterans T, Form T. Tax exemptions for disabled veterans Franchise, Franchise, trademark, or trade name. Tax exemptions for disabled veterans , Franchise, trademark, trade name. Tax exemptions for disabled veterans Franchise taxes, Franchise taxes. Tax exemptions for disabled veterans Free tax services, Free help with your tax return. Tax exemptions for disabled veterans Fringe benefits, Fringe Benefits Fuel taxes, Fuel taxes. Tax exemptions for disabled veterans G Gas wells, Natural Gas Wells Geological and geophysical costs Development, oil and gas, Geological and Geophysical Costs Exploration, oil and gas, Geological and Geophysical Costs Geothermal wells, Intangible Drilling Costs, Mines and Geothermal Deposits Gifts, nominal value, Gifts of nominal value. Tax exemptions for disabled veterans Going into business, Going Into Business, Starting a Business Goodwill, Goodwill. Tax exemptions for disabled veterans Gross income, not-for-profit activity, Gross Income H Health insurance, deduction for self-employed, Self-Employed Health Insurance Deduction Heating equipment, Heating equipment. Tax exemptions for disabled veterans Help (see Tax help) Home, business use of, Business use of your home. Tax exemptions for disabled veterans I Impairment-related expenses, Impairment-related expenses. Tax exemptions for disabled veterans Improvements, Improvements By lessee, Improvements by Lessee For disabled and elderly, Barrier Removal Costs Income taxes, Income Taxes Incorrect amount of amortization deducted, Incorrect Amount of Amortization Deducted Insurance Capitalized premiums, Capitalized Premiums Deductible premiums, Deductible Premiums Nondeductible premiums, Nondeductible Premiums Self-employed individuals, Self-Employed Health Insurance Deduction Intangible drilling costs, Intangible Drilling Costs Intangibles, amortization, Section 197 Intangibles Interest, Forgone interest. Tax exemptions for disabled veterans Allocation of, Allocation of Interest Below-market, Below-Market Loans Business expense for, Interest Capitalized, Capitalized interest. Tax exemptions for disabled veterans , Capitalization of Interest Carrying charge, Carrying Charges Deductible, Interest You Can Deduct Life insurance policies, Interest on loans with respect to life insurance policies. Tax exemptions for disabled veterans Not deductible, Interest You Cannot Deduct Refunds of, Refunds of interest. Tax exemptions for disabled veterans When to deduct, When To Deduct Interest Internet-related expenses, Internet-related expenses. Tax exemptions for disabled veterans Interview expenses, Interview expense allowances. Tax exemptions for disabled veterans K Key person, Who is a key person? Kickbacks, Bribes and kickbacks. Tax exemptions for disabled veterans L Leases Canceling, Canceling a lease. Tax exemptions for disabled veterans Cost of getting, Cost of Getting a Lease, Getting a Lease Improvements by lessee, Improvements by Lessee Leveraged, Leveraged leases. Tax exemptions for disabled veterans Mineral, Bonuses and advanced royalties. Tax exemptions for disabled veterans Oil and gas, Bonuses and advanced royalties. Tax exemptions for disabled veterans Sales distinguished, Lease or purchase. Tax exemptions for disabled veterans Taxes on, Taxes on Leased Property Legal and professional fees, Legal and professional fees. Tax exemptions for disabled veterans Licenses, Government-granted license, permit, etc. Tax exemptions for disabled veterans , Licenses and regulatory fees. Tax exemptions for disabled veterans Life insurance coverage, Life insurance coverage. Tax exemptions for disabled veterans Limit on deductions, Not-for-Profit Activities Line of credit, Line of credit (continuous borrowings). Tax exemptions for disabled veterans Loans Below-market interestrate, Below-Market Loans Discounted, Discounted loan. Tax exemptions for disabled veterans Loans or Advances, Loans or Advances Lobbying expenses, Lobbying expenses. Tax exemptions for disabled veterans Long-term care insurance, Qualified long-term care insurance. Tax exemptions for disabled veterans Losses, Limits on losses. Tax exemptions for disabled veterans , Not-for-Profit Activities At-risk limits, At-risk limits. Tax exemptions for disabled veterans Net operating, Net operating loss. Tax exemptions for disabled veterans Passive activities, Passive activities. Tax exemptions for disabled veterans M Machinery parts, Machinery parts. Tax exemptions for disabled veterans Meals, Reimbursement of Travel, Meals, and Entertainment Meals and entertainment, Meals and Entertainment Meals and lodging, Meals and lodging. Tax exemptions for disabled veterans Methods of accounting, When Can I Deduct an Expense? Mining Depletion, Mines and Geothermal Deposits Development costs, Development Costs Exploration costs, Exploration Costs Mortgage, Mortgage. Tax exemptions for disabled veterans , Expenses paid to obtain a mortgage. Tax exemptions for disabled veterans Moving expenses, machinery, Moving machinery. Tax exemptions for disabled veterans N Natural gas, Natural Gas Wells Nonqualifying intangibles, Assets That Are Not Section 197 Intangibles Not-for-profit activities, Not-for-Profit Activities Not-for-profit activity, gross income, Gross Income O Office in home, Business use of your home. Tax exemptions for disabled veterans Oil and gas wells Depletion, Oil and Gas Wells Drilling costs, Intangible Drilling Costs Partnerships, Partnerships and S Corporations S corporations, Partnerships and S Corporations Optional safe harbor method, Optional safe harbor method. Tax exemptions for disabled veterans Optional write-off method Circulation costs, Optional Write-off of Certain Tax Preferences Experimental costs, Optional Write-off of Certain Tax Preferences Intangible drilling and development costs, Optional Write-off of Certain Tax Preferences Mining exploration and development costs, Optional Write-off of Certain Tax Preferences Research costs, Optional Write-off of Certain Tax Preferences Organization costs Corporate, Costs of Organizing a Corporation Partnership, Costs of Organizing a Partnership Organizational costs, Business Start-Up and Organizational Costs Original issue discount, Original issue discount (OID). Tax exemptions for disabled veterans Outplacement services, Outplacement services. Tax exemptions for disabled veterans P Passive activities, Passive activities. Tax exemptions for disabled veterans Payments in kind, Payments in kind. Tax exemptions for disabled veterans Penalties, Prepayment penalty. Tax exemptions for disabled veterans Deductible, Penalties and fines. Tax exemptions for disabled veterans Nondeductible, Penalties and fines. Tax exemptions for disabled veterans Prepayment, Prepayment penalty. Tax exemptions for disabled veterans Per diem and car allowances, Per Diem and Car Allowances Percentage depletion, Percentage Depletion Personal property tax, Personal property tax. Tax exemptions for disabled veterans Political contributions, Political contributions. Tax exemptions for disabled veterans Pollution control facilities, Pollution Control Facilities Prepaid expense, Prepayment. Tax exemptions for disabled veterans Extends useful life, Prepayment. Tax exemptions for disabled veterans Interest, Prepaid interest. Tax exemptions for disabled veterans , Prepaid interest. Tax exemptions for disabled veterans Rent, Rent paid in advance. Tax exemptions for disabled veterans Prepayment penalty, Prepayment penalty. Tax exemptions for disabled veterans Presumption of profit, Not-for-Profit Activities Publications (see Tax help) R Real estate taxes, Real Estate Taxes Recapture Exploration expenses, Recapture of exploration expenses. Tax exemptions for disabled veterans Timber property, Recapture. Tax exemptions for disabled veterans Recordkeeping, Partnerships and S Corporations Recovery of amount deducted, Recovery of amount deducted (tax benefit rule). Tax exemptions for disabled veterans Refiners who cannot claim percentage depletion, Refiners who cannot claim percentage depletion. Tax exemptions for disabled veterans Reforestation costs, Reforestation Costs, Reforestation Costs Regulatory fees, Licenses and regulatory fees. Tax exemptions for disabled veterans Reimbursements, Reimbursements Business expenses, Reimbursements for Business Expenses Mileage, Per Diem and Car Allowances Nonaccountable plan, Nonaccountable Plans Per diem , Per Diem and Car Allowances Related persons Anti-churning rules, Related person. Tax exemptions for disabled veterans Coal or iron ore, Disposal to related person. Tax exemptions for disabled veterans Payments to, Related person. Tax exemptions for disabled veterans , Related person. Tax exemptions for disabled veterans Refiners, Related person. Tax exemptions for disabled veterans Unreasonable rent, Unreasonable rent. Tax exemptions for disabled veterans Removal, Retired Asset Removal Costs, Barrier Removal Costs Rent expense, capitalizing, Capitalizing Rent Expenses Repairs, Repairs. Tax exemptions for disabled veterans Repayments (claim of right), Repayments. Tax exemptions for disabled veterans Research costs, Research and Experimental Costs, Research and Experimental Costs Retiree drug subsidy, What's New for 2013, What's New S Sales taxes, Sales tax. Tax exemptions for disabled veterans Section 179 expense deduction (see Cost recovery) Self-employed health insurance deduction, Self-Employed Health Insurance Deduction Self-employment tax, Self-employment tax. Tax exemptions for disabled veterans Self-insurance, reserve for, Nondeductible Premiums Sick pay, Sick and Vacation Pay Standard meal allowance, Standard meal allowance. Tax exemptions for disabled veterans Standard mileage rate, Car allowance. Tax exemptions for disabled veterans (see Business use of your car) Standby charges, Commitment fees or standby charges. Tax exemptions for disabled veterans Start-up costs, Business Start-Up and Organizational Costs, Business Start-Up Costs Subscriptions, Subscriptions. Tax exemptions for disabled veterans Suggestions for publication, Comments and suggestions. Tax exemptions for disabled veterans Supplies and materials, Supplies and materials. Tax exemptions for disabled veterans T Tax help, How To Get Tax Help Tax preparation fees, Tax preparation fees. Tax exemptions for disabled veterans Taxes, Taxes on Leased Property Carrying charge, Carrying Charges Employment, Employment Taxes Excise, Excise taxes. Tax exemptions for disabled veterans Franchise, Franchise taxes. Tax exemptions for disabled veterans Fuel, Fuel taxes. Tax exemptions for disabled veterans Income, Income Taxes Leased property, Taxes on Leased Property Personal property, Personal property tax. Tax exemptions for disabled veterans Real estate, Real Estate Taxes Sales, Sales tax. Tax exemptions for disabled veterans Unemployment fund, Unemployment fund taxes. Tax exemptions for disabled veterans Telephone, Telephone. Tax exemptions for disabled veterans Timber, Reforestation Costs, Timber Tools, Tools. Tax exemptions for disabled veterans Trademark, trade name, Franchise, trademark, or trade name. Tax exemptions for disabled veterans , Franchise, trademark, trade name. Tax exemptions for disabled veterans Travel, Reimbursement of Travel, Meals, and Entertainment TTY/TDD information, How To Get Tax Help U Unemployment fund taxes, Unemployment fund taxes. Tax exemptions for disabled veterans Unpaid expenses, related person, Related person. Tax exemptions for disabled veterans Utilities, Utilities. Tax exemptions for disabled veterans V Vacation pay, Sick and Vacation Pay W Wages Property, Property Tests for deducting pay, Tests for Deducting Pay Welfare benefit funds, Welfare benefit funds. Tax exemptions for disabled veterans Prev  Up     Home   More Online Publications
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The Tax Exemptions For Disabled Veterans

Tax exemptions for disabled veterans Publication 925 - Main Content Table of Contents Passive Activity LimitsWho Must Use These Rules? Passive Activity Loss Passive Activity Credit Publicly Traded Partnership Excess Farm Loss Passive Activities Activities That Are Not Passive Activities Passive Activity Income and Deductions Grouping Your Activities Recharacterization of Passive Income Dispositions How To Report Your Passive Activity Loss Comprehensive ExampleGeneral Information At-Risk LimitsWho Is Affected? Activities Covered by the At-Risk Rules At-Risk Amounts Amounts Not At Risk Reductions of Amounts At Risk Recapture Rule How To Get Tax HelpLow Income Taxpayer Clinics Passive Activity Limits Who Must Use These Rules? The passive activity rules apply to: Individuals, Estates, Trusts (other than grantor trusts), Personal service corporations, and Closely held corporations. Tax exemptions for disabled veterans Even though the rules do not apply to grantor trusts, partnerships, and S corporations directly, they do apply to the owners of these entities. Tax exemptions for disabled veterans For information about personal service corporations and closely held corporations, including definitions and how the passive activity rules apply to these corporations, see Form 8810 and its instructions. Tax exemptions for disabled veterans Before applying the passive activity limits, you must first determine the amount of the deductions disallowed under the basis, excess farm loss, or at-risk rules. Tax exemptions for disabled veterans See Passive Activity Deductions, later. Tax exemptions for disabled veterans Passive Activity Loss Generally, the passive activity loss for the tax year is not allowed. Tax exemptions for disabled veterans However, there is a special allowance under which some or all of your passive activity loss may be allowed. Tax exemptions for disabled veterans See Special $25,000 allowance , later. Tax exemptions for disabled veterans Definition of passive activity loss. Tax exemptions for disabled veterans    Generally, your passive activity loss for the tax year is the excess of your passive activity deductions over your passive activity gross income. Tax exemptions for disabled veterans See Passive Activity Income and Deductions , later. Tax exemptions for disabled veterans   For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. Tax exemptions for disabled veterans For details on net active income, see the Instructions for Form 8810. Tax exemptions for disabled veterans For the definition of passive activity gross income, see Passive Activity Income , later. Tax exemptions for disabled veterans For the definition of passive activity deductions, see Passive Activity Deductions , later. Tax exemptions for disabled veterans Identification of Disallowed Passive Activity Deductions If all or a part of your passive activity loss is disallowed for the tax year, you may need to allocate the disallowed passive activity loss among different passive activities and among different deductions within a passive activity. Tax exemptions for disabled veterans Allocation of disallowed passive activity loss among activities. Tax exemptions for disabled veterans   If all or any part of your passive activity loss is disallowed for the tax year, a ratable portion of the loss (if any) from each of your passive activities is disallowed. Tax exemptions for disabled veterans The ratable portion of a loss from an activity is computed by multiplying the passive activity loss that is disallowed for the tax year by the fraction obtained by dividing: The loss from the activity for the tax year; by The sum of the losses for the tax year from all activities having losses for the tax year. Tax exemptions for disabled veterans Use Worksheet 5 of Form 8582 to figure the ratable portion of the loss from each activity that is disallowed. Tax exemptions for disabled veterans Loss from an activity. Tax exemptions for disabled veterans   The term “loss from an activity” means: The amount by which the passive activity deductions (defined later) from the activity for the tax year exceed the passive activity gross income (defined later) from the activity for the tax year; reduced by Any part of such amount that is allowed under the Special $25,000 Allowance , later. Tax exemptions for disabled veterans   If your passive activity gross income from significant participation passive activities (defined later) for the tax year is more than your passive activity deductions from those activities for the tax year, those activities shall be treated, solely for purposes of figuring your loss from the activity, as a single activity that does not have a loss for such taxable year. Tax exemptions for disabled veterans See Significant Participation Passive Activities , later. Tax exemptions for disabled veterans Example. Tax exemptions for disabled veterans John Pine holds interests in three passive activities, A, B, and C. Tax exemptions for disabled veterans The gross income and deductions from these activities for the taxable year are as follows:   A B C Total Gross income $7,000 $4,000 $12,000 $23,000 Deductions (16,000) (20,000) (8,000) (44,000)           Net income (loss) ($9,000) ($16,000) $4,000 ($21,000)   John Pine’s $21,000 passive activity loss for the taxable year is disallowed. Tax exemptions for disabled veterans Therefore, a ratable portion of the losses from activities A and B is disallowed. Tax exemptions for disabled veterans He figures the disallowed portion of each loss as follows: A: $21,000 x $9,000/$25,000 $7,560 B: $21,000 x $16,000/$25,000 13,440     Total $21,000 Allocation within loss activities. Tax exemptions for disabled veterans   If all or any part of your loss from an activity is disallowed under Allocation of disallowed passive activity loss among activities for the tax year, a ratable portion of each of your passive activity deductions (defined later), other than an excluded deduction (defined below) from such activity is disallowed. Tax exemptions for disabled veterans The ratable portion of a passive activity deduction is the amount of the disallowed portion of the loss from the activity for the tax year multiplied by the fraction obtained by dividing: The amount of such deduction; by The sum of all of your passive activity deductions (other than excluded deductions) from that activity from the tax year. Tax exemptions for disabled veterans Excluded deductions. Tax exemptions for disabled veterans    “Excluded deduction” means any passive activity deduction that is taken into account in computing your net income from an item of property for a taxable year in which an amount of the taxpayer's gross income from such item of property is treated as not from a passive activity. Tax exemptions for disabled veterans See Recharacterization of Passive Income , later. Tax exemptions for disabled veterans Separately identified deductions. Tax exemptions for disabled veterans   In identifying the deductions from an activity that are disallowed, you do not need to account separately for a deduction unless such deduction may, if separately taken into account, result in an income tax liability for any tax year different from that which would result were such deduction not taken into account separately. Tax exemptions for disabled veterans   Use Form 8582, Worksheet 7, for any activity if you have passive activity deductions for that activity that must be separately identified. Tax exemptions for disabled veterans   Deductions that must be accounted for separately include (but are not limited to) the following deductions. Tax exemptions for disabled veterans Deductions that arise in a rental real estate activity in tax years in which you actively participate in such activity. Tax exemptions for disabled veterans See Active participation , later. Tax exemptions for disabled veterans Deductions that arise in a rental real estate activity in tax years in which you do not actively participate in such activity. Tax exemptions for disabled veterans See Active participation , later. Tax exemptions for disabled veterans Losses from sales or exchanges of capital assets. Tax exemptions for disabled veterans Section 1231 losses. Tax exemptions for disabled veterans See Section 1231 Gains and Losses in Publication 544, Sales and Other Disposition of Assets, for more information. Tax exemptions for disabled veterans Carryover of Disallowed Deductions In the case of an activity with respect to which any deductions or credits are disallowed for a taxable year (the loss activity), the disallowed deductions are allocated among your activities for the next tax year in a manner that reasonably reflects the extent to which each activity continues the loss activity. Tax exemptions for disabled veterans The disallowed deductions or credits allocated to an activity under the preceding sentence are treated as deductions or credits from the activity for the next tax year. Tax exemptions for disabled veterans For more information, see Regulations section 1. Tax exemptions for disabled veterans 469-1(f)(4). Tax exemptions for disabled veterans Passive Activity Credit Generally, the passive activity credit for the tax year is disallowed. Tax exemptions for disabled veterans The passive activity credit is the amount by which the sum of all your credits subject to the passive activity rules exceed your regular tax liability allocable to all passive activities for the tax year. Tax exemptions for disabled veterans Credits that are included in figuring the general business credit are subject to the passive activity rules. Tax exemptions for disabled veterans See the Instructions for Form 8582-CR for more information. Tax exemptions for disabled veterans Publicly Traded Partnership You must apply the rules in this part separately to your income or loss from a passive activity held through a publicly traded partnership (PTP). Tax exemptions for disabled veterans You also must apply the limit on passive activity credits separately to your credits from a passive activity held through a PTP. Tax exemptions for disabled veterans You can offset deductions from passive activities of a PTP only against income or gain from passive activities of the same PTP. Tax exemptions for disabled veterans Likewise, you can offset credits from passive activities of a PTP only against the tax on the net passive income from the same PTP. Tax exemptions for disabled veterans This separate treatment rule also applies to a regulated investment company holding an interest in a PTP for the items attributable to that interest. Tax exemptions for disabled veterans For more information on how to apply the passive activity loss rules to PTPs, and on how to apply the limit on passive activity credits to PTPs, see Publicly Traded Partnerships (PTPs) in the Instructions for Forms 8582 and 8582-CR, respectively. Tax exemptions for disabled veterans Excess Farm Loss If you receive an applicable subsidy for any tax year and you have an excess farm loss for the tax year, special rules apply. Tax exemptions for disabled veterans These rules do not apply to C corporations. Tax exemptions for disabled veterans For information, see the Instructions for Schedule F (Form 1040), Profit or Loss From Farming. Tax exemptions for disabled veterans Passive Activities There are two kinds of passive activities. Tax exemptions for disabled veterans Trade or business activities in which you do not materially participate during the year. Tax exemptions for disabled veterans Rental activities, even if you do materially participate in them, unless you are a real estate professional. Tax exemptions for disabled veterans Material participation in a trade or business is discussed later, under Activities That Are Not Passive Activities . Tax exemptions for disabled veterans Treatment of former passive activities. Tax exemptions for disabled veterans   A former passive activity is an activity that was a passive activity in any earlier tax year, but is not a passive activity in the current tax year. Tax exemptions for disabled veterans You can deduct a prior year's unallowed loss from the activity up to the amount of your current year net income from the activity. Tax exemptions for disabled veterans Treat any remaining prior year unallowed loss like you treat any other passive loss. Tax exemptions for disabled veterans   In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. Tax exemptions for disabled veterans The allocable part of your current year tax liability is that part of this year's tax liability that is allocable to the current year net income from the former passive activity. Tax exemptions for disabled veterans You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero). Tax exemptions for disabled veterans Trade or Business Activities A trade or business activity is an activity that: Involves the conduct of a trade or business (that is, deductions would be allowable under section 162 of the Internal Revenue Code if other limitations, such as the passive activity rules, did not apply), Is conducted in anticipation of starting a trade or business, or Involves research or experimental expenditures that are deductible under Internal Revenue Code section 174 (or that would be deductible if you chose to deduct rather than capitalize them). Tax exemptions for disabled veterans A trade or business activity does not include a rental activity or the rental of property that is incidental to an activity of holding the property for investment. Tax exemptions for disabled veterans You generally report trade or business activities on Schedule C, C-EZ, F, or in Part II or III of Schedule E. Tax exemptions for disabled veterans Rental Activities A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional. Tax exemptions for disabled veterans See Real Estate Professional under Activities That Are Not Passive Activities, later. Tax exemptions for disabled veterans An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers, and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. Tax exemptions for disabled veterans It does not matter whether the use is under a lease, a service contract, or some other arrangement. Tax exemptions for disabled veterans Exceptions. Tax exemptions for disabled veterans   Your activity is not a rental activity if any of the following apply. Tax exemptions for disabled veterans The average period of customer use of the property is 7 days or less. Tax exemptions for disabled veterans You figure the average period of customer use by dividing the total number of days in all rental periods by the number of rentals during the tax year. Tax exemptions for disabled veterans If the activity involves renting more than one class of property, multiply the average period of customer use of each class by a fraction. Tax exemptions for disabled veterans The numerator of the fraction is the gross rental income from that class of property and the denominator is the activity's total gross rental income. Tax exemptions for disabled veterans The activity's average period of customer use will equal the sum of the amounts for each class. Tax exemptions for disabled veterans The average period of customer use of the property, as figured in (1) above, is 30 days or less and you provide significant personal services with the rentals. Tax exemptions for disabled veterans Significant personal services include only services performed by individuals. Tax exemptions for disabled veterans To determine if personal services are significant, all relevant facts and circumstances are taken into consideration, including the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property. Tax exemptions for disabled veterans Significant personal services do not include the following. Tax exemptions for disabled veterans Services needed to permit the lawful use of the property, Services to repair or improve property that would extend its useful life for a period substantially longer than the average rental, and Services that are similar to those commonly provided with long-term rentals of real estate, such as cleaning and maintenance of common areas or routine repairs. Tax exemptions for disabled veterans You provide extraordinary personal services in making the rental property available for customer use. Tax exemptions for disabled veterans Services are extraordinary personal services if they are performed by individuals and the customers' use of the property is incidental to their receipt of the services. Tax exemptions for disabled veterans The rental is incidental to a nonrental activity. Tax exemptions for disabled veterans The rental of property is incidental to an activity of holding property for investment if the main purpose of holding the property is to realize a gain from its appreciation and the gross rental income from the property is less than 2% of the smaller of the property's unadjusted basis or fair market value. Tax exemptions for disabled veterans The unadjusted basis of property is its cost not reduced by depreciation or any other basis adjustment. Tax exemptions for disabled veterans The rental of property is incidental to a trade or business activity if all of the following apply. Tax exemptions for disabled veterans You own an interest in the trade or business activity during the year. Tax exemptions for disabled veterans The rental property was used mainly in that trade or business activity during the current year, or during at least 2 of the 5 preceding tax years. Tax exemptions for disabled veterans Your gross rental income from the property is less than 2% of the smaller of its unadjusted basis or fair market value. Tax exemptions for disabled veterans Lodging provided to an employee or the employee's spouse or dependents is incidental to the activity or activities in which the employee performs services if the lodging is furnished for the employer's convenience. Tax exemptions for disabled veterans You customarily make the rental property available during defined business hours for nonexclusive use by various customers. Tax exemptions for disabled veterans You provide the property for use in a nonrental activity in your capacity as an owner of an interest in the partnership, S corporation, or joint venture conducting that activity. Tax exemptions for disabled veterans    If you meet any of the exceptions listed above, see the instructions for Form 8582 for information about how to report any income or loss from the activity. Tax exemptions for disabled veterans Special $25,000 allowance. Tax exemptions for disabled veterans   If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that is disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income. Tax exemptions for disabled veterans This special allowance is an exception to the general rule disallowing the passive activity loss. Tax exemptions for disabled veterans Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Tax exemptions for disabled veterans   If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. Tax exemptions for disabled veterans If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income. Tax exemptions for disabled veterans   The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. Tax exemptions for disabled veterans See Phaseout rule , later. Tax exemptions for disabled veterans Example. Tax exemptions for disabled veterans Kate, a single taxpayer, has $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and is not subject to the modified adjusted gross income phaseout rule. Tax exemptions for disabled veterans She can use $15,000 of her $26,000 loss to offset her $15,000 passive income from the partnership. Tax exemptions for disabled veterans She actively participated in her rental real estate activities, so she can use the remaining $11,000 rental real estate loss to offset $11,000 of her nonpassive income (wages). Tax exemptions for disabled veterans Commercial revitalization deduction (CRD). Tax exemptions for disabled veterans   The special allowance must first be applied to losses from rental real estate activities figured without the CRD. Tax exemptions for disabled veterans Any remaining part of the special allowance is available for the CRD from the rental real estate activities and is not subject to the active participation rules or the phaseout based on modified adjusted gross income. Tax exemptions for disabled veterans You cannot claim a CRD for a building placed in service after December 31, 2009. Tax exemptions for disabled veterans Active participation. Tax exemptions for disabled veterans   Active participation is not the same as material participation (defined later). Tax exemptions for disabled veterans Active participation is a less stringent standard than material participation. Tax exemptions for disabled veterans For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense. Tax exemptions for disabled veterans Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Tax exemptions for disabled veterans   Only individuals can actively participate in rental real estate activities. Tax exemptions for disabled veterans However, a decedent's estate is treated as actively participating for its tax years ending less than 2 years after the decedent's death, if the decedent would have satisfied the active participation requirement for the activity for the tax year the decedent died. Tax exemptions for disabled veterans   A decedent's qualified revocable trust can also be treated as actively participating if both the trustee and the executor (if any) of the estate choose to treat the trust as part of the estate. Tax exemptions for disabled veterans The choice applies to tax years ending after the decedent's death and before: 2 years after the decedent's death if no estate tax return is required, or 6 months after the estate tax liability is finally determined if an estate tax return is required. Tax exemptions for disabled veterans   The choice is irrevocable and cannot be made later than the due date for the estate's first income tax return (including any extensions). Tax exemptions for disabled veterans   Limited partners are not treated as actively participating in a partnership's rental real estate activities. Tax exemptions for disabled veterans   You are not treated as actively participating in a rental real estate activity unless your interest in the activity (including your spouse's interest) was at least 10% (by value) of all interests in the activity throughout the year. Tax exemptions for disabled veterans   Active participation is not required to take the low-income housing credit, the rehabilitation investment credit, or CRD from rental real estate activities. Tax exemptions for disabled veterans Example. Tax exemptions for disabled veterans Mike, a single taxpayer, had the following income and loss during the tax year: Salary $42,300 Dividends 300 Interest 1,400 Rental loss (4,000) The rental loss came from a house Mike owned. Tax exemptions for disabled veterans He advertised and rented the house to the current tenant himself. Tax exemptions for disabled veterans He also collected the rents and did the repairs or hired someone to do them. Tax exemptions for disabled veterans Even though the rental loss is a loss from a passive activity, Mike can use the entire $4,000 loss to offset his other income because he actively participated. Tax exemptions for disabled veterans Phaseout rule. Tax exemptions for disabled veterans   The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that is more than $100,000 ($50,000 if you are married filing separately). Tax exemptions for disabled veterans If your modified adjusted gross income is $150,000 or more ($75,000 or more if you are married filing separately), you generally cannot use the special allowance. Tax exemptions for disabled veterans    Modified adjusted gross income for this purpose is your adjusted gross income figured without the following. Tax exemptions for disabled veterans Taxable social security and tier 1 railroad retirement benefits. Tax exemptions for disabled veterans Deductible contributions to individual retirement accounts (IRAs) and section 501(c)(18) pension plans. Tax exemptions for disabled veterans The exclusion from income of interest from qualified U. Tax exemptions for disabled veterans S. Tax exemptions for disabled veterans savings bonds used to pay qualified higher education expenses. Tax exemptions for disabled veterans The exclusion from income of amounts received from an employer's adoption assistance program. Tax exemptions for disabled veterans Passive activity income or loss included on Form 8582. Tax exemptions for disabled veterans Any rental real estate loss allowed because you materially participated in the rental activity as a Real Estate Professional (as discussed later, under Activities That Are Not Passive Activities). Tax exemptions for disabled veterans Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the instructions for Form 8582). Tax exemptions for disabled veterans The deduction for the employer-equivalent portion of self-employment tax. Tax exemptions for disabled veterans The deduction for domestic production activities. Tax exemptions for disabled veterans The deduction allowed for interest on student loans. Tax exemptions for disabled veterans The deduction for qualified tuition and related expenses. Tax exemptions for disabled veterans Example. Tax exemptions for disabled veterans During 2013, John was unmarried and was not a real estate professional. Tax exemptions for disabled veterans For 2013, he had $120,000 in salary and a $31,000 loss from his rental real estate activities in which he actively participated. Tax exemptions for disabled veterans His modified adjusted gross income is $120,000. Tax exemptions for disabled veterans When he files his 2013 return, he can deduct only $15,000 of his passive activity loss. Tax exemptions for disabled veterans He must carry over the remaining $16,000 passive activity loss to 2014. Tax exemptions for disabled veterans He figures his deduction and carryover as follows: Adjusted gross income, modified as required $120,000       Minus amount not subject to phaseout 100,000 Amount subject to phaseout rule $20,000 Multiply by 50% × 50% Required reduction to special allowance $10,000 Maximum special allowance $25,000 Minus required reduction (see above) 10,000 Adjusted special allowance $15,000 Passive loss from rental real estate $31,000 Deduction allowable/Adjusted  special allowance (see above) 15,000       Amount that must be carried forward $16,000 Exceptions to the phaseout rules. Tax exemptions for disabled veterans   A higher phaseout range applies to rehabilitation investment credits from rental real estate activities. Tax exemptions for disabled veterans For those credits, the phaseout of the $25,000 special allowance starts when your modified adjusted gross income exceeds $200,000 ($100,000 if you are a married individual filing a separate return and living apart at all times during the year). Tax exemptions for disabled veterans   There is no phaseout of the $25,000 special allowance for low-income housing credits or for the CRD. Tax exemptions for disabled veterans Ordering rules. Tax exemptions for disabled veterans   If you have more than one of the exceptions to the phaseout rules in the same tax year, you must apply the $25,000 phaseout against your passive activity losses and credits in the following order. Tax exemptions for disabled veterans The portion of passive activity losses not attributable to the CRD. Tax exemptions for disabled veterans The portion of passive activity losses attributable to the CRD. Tax exemptions for disabled veterans The portion of passive activity credits attributable to credits other than the rehabilitation and low-income housing credits. Tax exemptions for disabled veterans The portion of passive activity credits attributable to the rehabilitation credit. Tax exemptions for disabled veterans The portion of passive activity credits attributable to the low-income housing credit. Tax exemptions for disabled veterans Activities That Are Not Passive Activities The following are not passive activities. Tax exemptions for disabled veterans Trade or business activities in which you materially participated for the tax year. Tax exemptions for disabled veterans A working interest in an oil or gas well which you hold directly or through an entity that does not limit your liability (such as a general partner interest in a partnership). Tax exemptions for disabled veterans It does not matter whether you materially participated in the activity for the tax year. Tax exemptions for disabled veterans However, if your liability was limited for part of the year (for example, you converted your general partner interest to a limited partner interest during the year) and you had a net loss from the well for the year, some of your income and deductions from the working interest may be treated as passive activity gross income and passive activity deductions. Tax exemptions for disabled veterans  See Temporary Regulations section 1. Tax exemptions for disabled veterans 469-1T(e)(4)(ii). Tax exemptions for disabled veterans The rental of a dwelling unit that you also used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental. Tax exemptions for disabled veterans An activity of trading personal property for the account of those who own interests in the activity. Tax exemptions for disabled veterans See Temporary Regulations section 1. Tax exemptions for disabled veterans 469-1T(e)(6). Tax exemptions for disabled veterans Rental real estate activities in which you materially participated as a real estate professional. Tax exemptions for disabled veterans See Real Estate Professional , later. Tax exemptions for disabled veterans You should not enter income and losses from these activities on Form 8582. Tax exemptions for disabled veterans Instead, enter them on the forms or schedules you would normally use. Tax exemptions for disabled veterans Material Participation A trade or business activity is not a passive activity if you materially participated in the activity. Tax exemptions for disabled veterans Material participation tests. Tax exemptions for disabled veterans    You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests. Tax exemptions for disabled veterans You participated in the activity for more than 500 hours. Tax exemptions for disabled veterans Your participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity. Tax exemptions for disabled veterans You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who did not own any interest in the activity) for the year. Tax exemptions for disabled veterans The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours. Tax exemptions for disabled veterans A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you did not materially participate under any of the material participation tests, other than this test. Tax exemptions for disabled veterans See Significant Participation Passive Activities , under Recharacterization of Passive Income, later. Tax exemptions for disabled veterans You materially participated in the activity for any 5 (whether or not consecutive) of the 10 immediately preceding tax years. Tax exemptions for disabled veterans The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. Tax exemptions for disabled veterans An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor. Tax exemptions for disabled veterans Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year. Tax exemptions for disabled veterans   You did not materially participate in the activity under test (7) if you participated in the activity for 100 hours or less during the year. Tax exemptions for disabled veterans Your participation in managing the activity does not count in determining whether you materially participated under this test if: Any person other than you received compensation for managing the activity, or Any individual spent more hours during the tax year managing the activity than you did (regardless of whether the individual was compensated for the management services). Tax exemptions for disabled veterans Participation. Tax exemptions for disabled veterans   In general, any work you do in connection with an activity in which you own an interest is treated as participation in the activity. Tax exemptions for disabled veterans Work not usually performed by owners. Tax exemptions for disabled veterans   You do not treat the work you do in connection with an activity as participation in the activity if both of the following are true. Tax exemptions for disabled veterans The work is not work that is customarily done by the owner of that type of activity. Tax exemptions for disabled veterans One of your main reasons for doing the work is to avoid the disallowance of any loss or credit from the activity under the passive activity rules. Tax exemptions for disabled veterans Participation as an investor. Tax exemptions for disabled veterans   You do not treat the work you do in your capacity as an investor in an activity as participation unless you are directly involved in the day-to-day management or operations of the activity. Tax exemptions for disabled veterans Work you do as an investor includes: Studying and reviewing financial statements or reports on operations of the activity, Preparing or compiling summaries or analyses of the finances or operations of the activity for your own use, and Monitoring the finances or operations of the activity in a nonmanagerial capacity. Tax exemptions for disabled veterans Spouse's participation. Tax exemptions for disabled veterans   Your participation in an activity includes your spouse's participation. Tax exemptions for disabled veterans This applies even if your spouse did not own any interest in the activity and you and your spouse do not file a joint return for the year. Tax exemptions for disabled veterans Proof of participation. Tax exemptions for disabled veterans You can use any reasonable method to prove your participation in an activity for the year. Tax exemptions for disabled veterans You do not have to keep contemporaneous daily time reports, logs, or similar documents if you can establish your participation in some other way. Tax exemptions for disabled veterans For example, you can show the services you performed and the approximate number of hours spent by using an appointment book, calendar, or narrative summary. Tax exemptions for disabled veterans Limited partners. Tax exemptions for disabled veterans   If you owned an activity as a limited partner, you generally are not treated as materially participating in the activity. Tax exemptions for disabled veterans However, you are treated as materially participating in the activity if you met test (1), (5), or (6) under Material participation tests , discussed earlier, for the tax year. Tax exemptions for disabled veterans   You are not treated as a limited partner, however, if you also were a general partner in the partnership at all times during the partnership's tax year ending with or within your tax year (or, if shorter, during that part of the partnership's tax year in which you directly or indirectly owned your limited partner interest). Tax exemptions for disabled veterans Retired or disabled farmer and surviving spouse of a farmer. Tax exemptions for disabled veterans   If you are a retired or disabled farmer, you are treated as materially participating in a farming activity if you materially participated for 5 or more of the 8 years before your retirement or disability. Tax exemptions for disabled veterans Similarly, if you are a surviving spouse of a farmer, you are treated as materially participating in a farming activity if the real property used in the activity meets the estate tax rules for special valuation of farm property passed from a qualifying decedent, and you actively manage the farm. Tax exemptions for disabled veterans Corporations. Tax exemptions for disabled veterans   A closely held corporation or a personal service corporation is treated as materially participating in an activity only if one or more shareholders holding more than 50% by value of the outstanding stock of the corporation materially participate in the activity. Tax exemptions for disabled veterans   A closely held corporation can also satisfy the material participation standard by meeting the first two requirements for the qualifying business exception from the at-risk limits. Tax exemptions for disabled veterans See Special exception for qualified corporations under Activities Covered by the At-Risk Rules, later. Tax exemptions for disabled veterans Real Estate Professional Generally, rental activities are passive activities even if you materially participated in them. Tax exemptions for disabled veterans However, if you qualified as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Tax exemptions for disabled veterans For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. Tax exemptions for disabled veterans See the Instructions for Schedule E (Form 1040), Supplemental Income and Loss, for information about making this choice. Tax exemptions for disabled veterans If you qualified as a real estate professional for 2013, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). Tax exemptions for disabled veterans If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier. Tax exemptions for disabled veterans Qualifications. Tax exemptions for disabled veterans   You qualified as a real estate professional for the year if you met both of the following requirements. Tax exemptions for disabled veterans More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated. Tax exemptions for disabled veterans You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. Tax exemptions for disabled veterans   Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. Tax exemptions for disabled veterans You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest. Tax exemptions for disabled veterans   If you file a joint return, do not count your spouse's personal services to determine whether you met the preceding requirements. Tax exemptions for disabled veterans However, you can count your spouse's participation in an activity in determining if you materially participated. Tax exemptions for disabled veterans Real property trades or businesses. Tax exemptions for disabled veterans   A real property trade or business is a trade or business that does any of the following with real property. Tax exemptions for disabled veterans Develops or redevelops it. Tax exemptions for disabled veterans Constructs or reconstructs it. Tax exemptions for disabled veterans Acquires it. Tax exemptions for disabled veterans Converts it. Tax exemptions for disabled veterans Rents or leases it. Tax exemptions for disabled veterans Operates or manages it. Tax exemptions for disabled veterans Brokers it. Tax exemptions for disabled veterans Closely held corporations. Tax exemptions for disabled veterans   A closely held corporation can qualify as a real estate professional if more than 50% of the gross receipts for its tax year came from real property trades or businesses in which it materially participated. Tax exemptions for disabled veterans Passive Activity Income and Deductions In figuring your net income or loss from a passive activity, take into account only passive activity income and passive activity deductions. Tax exemptions for disabled veterans Self-charged interest. Tax exemptions for disabled veterans   Certain self-charged interest income or deductions may be treated as passive activity gross income or passive activity deductions if the loan proceeds are used in a passive activity. Tax exemptions for disabled veterans   Generally, self-charged interest income and deductions result from loans between you and a partnership or S corporation in which you had a direct or indirect ownership interest. Tax exemptions for disabled veterans This includes both loans you made to the partnership or S corporation and loans the partnership or S corporation made to you. Tax exemptions for disabled veterans   It also includes loans from one partnership or S corporation to another partnership or S corporation if each owner in the borrowing entity has the same proportional ownership interest in the lending entity. Tax exemptions for disabled veterans    Exception. Tax exemptions for disabled veterans The self-charged interest rules do not apply to your interest in a partnership or S corporation if the entity made an election under Regulations section 1. Tax exemptions for disabled veterans 469-7(g) to avoid the application of these rules. Tax exemptions for disabled veterans For more details on the self-charged interest rules, see Regulations section 1. Tax exemptions for disabled veterans 469-7. Tax exemptions for disabled veterans Passive Activity Income Passive activity income includes all income from passive activities and generally includes gain from disposition of an interest in a passive activity or property used in a passive activity. Tax exemptions for disabled veterans Passive activity income does not include the following items. Tax exemptions for disabled veterans Income from an activity that is not a passive activity. Tax exemptions for disabled veterans These activities are discussed under Activities That Are Not Passive Activities , earlier. Tax exemptions for disabled veterans Portfolio income. Tax exemptions for disabled veterans This includes interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. Tax exemptions for disabled veterans It includes gain or loss from the disposition of property that produces these types of income or that is held for investment. Tax exemptions for disabled veterans The exclusion for portfolio income does not apply to self-charged interest treated as passive activity income. Tax exemptions for disabled veterans For more information on self-charged interest, see Self-charged interest , earlier. Tax exemptions for disabled veterans Personal service income. Tax exemptions for disabled veterans This includes salaries, wages, commissions, self-employment income from trade or business activities in which you materially participated, deferred compensation, taxable social security and other retirement benefits, and payments from partnerships to partners for personal services. Tax exemptions for disabled veterans Income from positive section 481 adjustments allocated to activities other than passive activities. Tax exemptions for disabled veterans (Section 481 adjustments are adjustments that must be made due to changes in your accounting method. Tax exemptions for disabled veterans ) Income or gain from investments of working capital. Tax exemptions for disabled veterans Income from an oil or gas property if you treated any loss from a working interest in the property for any tax year beginning after 1986 as a nonpassive loss, as discussed in item (2) under Activities That Are Not Passive Activities , earlier. Tax exemptions for disabled veterans This also applies to income from other oil and gas property the basis of which is determined wholly or partly by the basis of the property in the preceding sentence. Tax exemptions for disabled veterans Any income from intangible property, such as a patent, copyright, or literary, musical, or artistic composition, if your personal efforts significantly contributed to the creation of the property. Tax exemptions for disabled veterans Any other income that must be treated as nonpassive income. Tax exemptions for disabled veterans See Recharacterization of Passive Income , later. Tax exemptions for disabled veterans Overall gain from any interest in a publicly traded partnership. Tax exemptions for disabled veterans See Publicly Traded Partnerships (PTPs) in the instructions for Form 8582. Tax exemptions for disabled veterans State, local, and foreign income tax refunds. Tax exemptions for disabled veterans Income from a covenant not to compete. Tax exemptions for disabled veterans Reimbursement of a casualty or theft loss included in gross income to recover all or part of a prior year loss deduction, if the loss deduction was not a passive activity deduction. Tax exemptions for disabled veterans Alaska Permanent Fund dividends. Tax exemptions for disabled veterans Cancellation of debt income, if at the time the debt is discharged the debt is not allocated to passive activities under the interest expense allocation rules. Tax exemptions for disabled veterans See chapter 4 of Publication 535, Business Expenses, for information about the rules for allocating interest. Tax exemptions for disabled veterans Disposition of property interests. Tax exemptions for disabled veterans   Gain on the disposition of an interest in property generally is passive activity income if, at the time of the disposition, the property was used in an activity that was a passive activity in the year of disposition. Tax exemptions for disabled veterans The gain generally is not passive activity income if, at the time of disposition, the property was used in an activity that was not a passive activity in the year of disposition. Tax exemptions for disabled veterans An exception to this general rule may apply if you previously used the property in a different activity. Tax exemptions for disabled veterans Exception for more than one use in the preceding 12 months. Tax exemptions for disabled veterans   If you used the property in more than one activity during the 12-month period before its disposition, you must allocate the gain between the activities on a basis that reasonably reflects the property's use during that period. Tax exemptions for disabled veterans Any gain allocated to a passive activity is passive activity income. Tax exemptions for disabled veterans   For this purpose, an allocation of the gain solely to the activity in which the property was mainly used during that period reasonably reflects the property's use if the fair market value of your interest in the property is not more than the lesser of: $10,000, or 10% of the total of the fair market value of your interest in the property and the fair market value of all other property used in that activity immediately before the disposition. Tax exemptions for disabled veterans Exception for substantially appreciated property. Tax exemptions for disabled veterans   The gain is passive activity income if the fair market value of the property at disposition was more than 120% of its adjusted basis and either of the following conditions applies. Tax exemptions for disabled veterans You used the property in a passive activity for 20% of the time you held your interest in the property. Tax exemptions for disabled veterans You used the property in a passive activity for the entire 24-month period before its disposition. Tax exemptions for disabled veterans If neither condition applies, the gain is not passive activity income. Tax exemptions for disabled veterans However, it is treated as portfolio income only if you held the property for investment for more than half of the time you held it in nonpassive activities. Tax exemptions for disabled veterans   For this purpose, treat property you held through a corporation (other than an S corporation) or other entity whose owners receive only portfolio income as property held in a nonpassive activity and as property held for investment. Tax exemptions for disabled veterans Also, treat the date you agree to transfer your interest for a fixed or determinable amount as the disposition date. Tax exemptions for disabled veterans   If you used the property in more than one activity during the 12-month period before its disposition, this exception applies only to the part of the gain allocated to a passive activity under the rules described in the preceding discussion. Tax exemptions for disabled veterans Disposition of property converted to inventory. Tax exemptions for disabled veterans   If you disposed of property that you had converted to inventory from its use in another activity (for example, you sold condominium units you previously held for use in a rental activity), a special rule may apply. Tax exemptions for disabled veterans Under this rule, you disregard the property's use as inventory and treat it as if it were still used in that other activity at the time of disposition. Tax exemptions for disabled veterans This rule applies only if you meet all of the following conditions. Tax exemptions for disabled veterans At the time of disposition, you held your interest in the property in a dealing activity (an activity that involves holding the property or similar property mainly for sale to customers in the ordinary course of a trade or business). Tax exemptions for disabled veterans Your other activities included a nondealing activity (an activity that does not involve holding similar property for sale to customers in the ordinary course of a trade or business) in which you used the property for more than 80% of the period you held it. Tax exemptions for disabled veterans You did not acquire or hold your interest in the property for the main purpose of selling it to customers in the ordinary course of a trade or business. Tax exemptions for disabled veterans Passive Activity Deductions Generally, a deduction is a passive activity deduction for a taxable year if and only if such deduction either: Arises in connection with the conduct of an activity that is a passive activity for the tax year; or Is treated as a deduction from an activity for the tax year because it was disallowed by the passive activity rules in the preceding year and carried forward to the tax year. Tax exemptions for disabled veterans For purposes of item (1), above, an item of deduction arises in the taxable year in which the item would be allowable as a deduction under the taxpayer's method of accounting if taxable income for all taxable years were determined without regard to the passive activity rules and without regard to the basis, excess farm loss, and at-risk limits. Tax exemptions for disabled veterans See Coordination with other limitations on deductions that apply before the passive activity rules , later. Tax exemptions for disabled veterans Passive activity deductions generally include losses from dispositions of property used in a passive activity at the time of the disposition and losses from a disposition of less than your entire interest in a passive activity. Tax exemptions for disabled veterans Exceptions. Tax exemptions for disabled veterans   Passive activity deductions do not include the following items. Tax exemptions for disabled veterans Deductions for expenses (other than interest expense) that are clearly and directly allocable to portfolio income. Tax exemptions for disabled veterans Qualified home mortgage interest, capitalized interest expenses, and other interest expenses (other than self-charged interest) properly allocable to passive activities. Tax exemptions for disabled veterans For more information on self-charged interest, see Self-charged interest under Passive Activity Income and Deductions, earlier. Tax exemptions for disabled veterans Losses from dispositions of property that produce portfolio income or property held for investment. Tax exemptions for disabled veterans State, local, and foreign income taxes. Tax exemptions for disabled veterans Miscellaneous itemized deductions that may be disallowed because of the 2%-of-adjusted-gross-income limit. Tax exemptions for disabled veterans Charitable contribution deductions. Tax exemptions for disabled veterans Net operating loss deductions. Tax exemptions for disabled veterans Percentage depletion carryovers for oil and gas wells. Tax exemptions for disabled veterans Capital loss carrybacks and carryovers. Tax exemptions for disabled veterans Items of deduction from a passive activity that are disallowed under the limits on deductions that apply before the passive activity rules. Tax exemptions for disabled veterans See Coordination with other limitations on deductions that apply before the passive activity rules , later. Tax exemptions for disabled veterans Deductions and losses that would have been allowed for tax years beginning before 1987 but for basis or at-risk limits. Tax exemptions for disabled veterans Net negative section 481 adjustments allocated to activities other than passive activities. Tax exemptions for disabled veterans (Section 481 adjustments are adjustments required due to changes in accounting methods. Tax exemptions for disabled veterans ) Casualty and theft losses, unless losses similar in cause and severity recur regularly in the activity. Tax exemptions for disabled veterans The deduction for the employer-equivalent portion of self-employment tax. Tax exemptions for disabled veterans Coordination with other limitations on deductions that apply before the passive activity rules. Tax exemptions for disabled veterans   An item of deduction from a passive activity that is disallowed for a tax year under the basis or at-risk limitations is not a passive activity deduction for the tax year. Tax exemptions for disabled veterans The following sections provide rules for figuring the extent to which items of deduction from a passive activity are disallowed for a tax year under the basis or at-risk limitations. Tax exemptions for disabled veterans Proration of deductions disallowed under basis limitations. Tax exemptions for disabled veterans   If any amount of your distributive share of a partnership's loss for the tax year is disallowed under the basis limitation, a ratable portion of your distributive share of each item of deduction or loss of the partnership is disallowed for the tax year. Tax exemptions for disabled veterans For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of your distributive share of partnership loss that is disallowed for the taxable year; by The sum of your distributive shares of all items of deduction and loss of the partnership for the tax year. Tax exemptions for disabled veterans   If any amount of your pro rata share of an S corporation's loss for the tax year is disallowed under the basis limitation, a ratable portion of your pro rata share of each item of deduction or loss of the S corporation is disallowed for the tax year. Tax exemptions for disabled veterans For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of your share of S corporation loss that is disallowed for the tax year; by The sum of your pro rata shares of all items of deduction and loss of the corporation for the tax year. Tax exemptions for disabled veterans Proration of deductions disallowed under at-risk limitation. Tax exemptions for disabled veterans   If any amount of your loss from an activity (as defined in Activities Covered by the At-Risk Rules , later) is disallowed under the at-risk rules for the tax year, a ratable portion of each item of deduction or loss from the activity is disallowed for the tax year. Tax exemptions for disabled veterans For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of the loss from the activity that is disallowed for the tax year; by The sum of all deductions from the activity for the taxable year. Tax exemptions for disabled veterans Coordination of basis and at-risk limitations. Tax exemptions for disabled veterans   The portion of any item of deduction or loss that is disallowed for the tax year under the basis limitations is not taken into account for the taxable year in determining the loss from an activity (as defined in Activities Covered by the At-Risk Rules , later) for purposes of applying the at-risk rules. Tax exemptions for disabled veterans Separately identified items of deduction and loss. Tax exemptions for disabled veterans   In identifying the items of deduction and loss from an activity that are not disallowed under the basis and at-risk limitations (and that therefore may be treated as passive activity deductions), you need not account separately for any item of deduction or loss unless such item may, if separately taken into account, result in an income tax liability different from that which would result were such item of deduction or loss taken into account separately. Tax exemptions for disabled veterans   Items of deduction or loss that must be accounted for separately include (but are not limited to) items of deduction or loss that: Are attributable to separate activities. Tax exemptions for disabled veterans See Grouping Your Activities , later. Tax exemptions for disabled veterans Arise in a rental real estate activity in tax years in which you actively participate in such activity; Arise in a rental real estate activity in taxable years in which you do not actively participate in such activity; Arose in a taxable year beginning before 1987 and were not allowed for such taxable year under the basis or at-risk limitations; Are taken into account under section 613A(d) (relating to limitations on certain depletion deductions); Are taken into account under section 1211 (relating to the limitation on capital losses); Are taken into account under section 1231 (relating to property used in a trade or business and involuntary conversions). Tax exemptions for disabled veterans See Section 1231 Gains and Losses in Publication 544 for more information. Tax exemptions for disabled veterans Are attributable to pre-enactment interests in activities. Tax exemptions for disabled veterans See Regulations section 1. Tax exemptions for disabled veterans 469-11T(c). Tax exemptions for disabled veterans Grouping Your Activities You can treat one or more trade or business activities, or rental activities, as a single activity if those activities form an appropriate economic unit for measuring gain or loss under the passive activity rules. Tax exemptions for disabled veterans Grouping is important for a number of reasons. Tax exemptions for disabled veterans If you group two activities into one larger activity, you need only show material participation in the activity as a whole. Tax exemptions for disabled veterans But if the two activities are separate, you must show material participation in each one. Tax exemptions for disabled veterans On the other hand, if you group two activities into one larger activity and you dispose of one of the two, then you have disposed of only part of your entire interest in the activity. Tax exemptions for disabled veterans But if the two activities are separate and you dispose of one of them, then you have disposed of your entire interest in that activity. Tax exemptions for disabled veterans Grouping can also be important in determining whether you meet the 10% ownership requirement for actively participating in a rental real estate activity. Tax exemptions for disabled veterans Appropriate Economic Units Generally, to determine if activities form an appropriate economic unit, you must consider all the relevant facts and circumstances. Tax exemptions for disabled veterans You can use any reasonable method of applying the relevant facts and circumstances in grouping activities. Tax exemptions for disabled veterans The following factors have the greatest weight in determining whether activities form an appropriate economic unit. Tax exemptions for disabled veterans All of the factors do not have to apply to treat more than one activity as a single activity. Tax exemptions for disabled veterans The factors that you should consider are: The similarities and differences in the types of trades or businesses, The extent of common control, The extent of common ownership, The geographical location, and The interdependencies between or among activities, which may include the extent to which the activities: Buy or sell goods between or among themselves, Involve products or services that are generally provided together, Have the same customers, Have the same employees, or Use a single set of books and records to account for the activities. Tax exemptions for disabled veterans Example 1. Tax exemptions for disabled veterans John Jackson owns a bakery and a movie theater at a shopping mall in Baltimore and a bakery and movie theater in Philadelphia. Tax exemptions for disabled veterans Based on all the relevant facts and circumstances, there may be more than one reasonable method for grouping John's activities. Tax exemptions for disabled veterans For example, John may be able to group the movie theaters and the bakeries into: One activity, A movie theater activity and a bakery activity, A Baltimore activity and a Philadelphia activity, or Four separate activities. Tax exemptions for disabled veterans Example 2. Tax exemptions for disabled veterans Betty is a partner in ABC partnership, which sells nonfood items to grocery stores. Tax exemptions for disabled veterans Betty is also a partner in DEF (a trucking business). Tax exemptions for disabled veterans ABC and DEF are under common control. Tax exemptions for disabled veterans The main part of DEF's business is transporting goods for ABC. Tax exemptions for disabled veterans DEF is the only trucking business in which Betty is involved. Tax exemptions for disabled veterans Based on the rules of this section, Betty treats ABC's wholesale activity and DEF's trucking activity as a single activity. Tax exemptions for disabled veterans Consistency and disclosure requirement. Tax exemptions for disabled veterans   Generally, when you group activities into appropriate economic units, you may not regroup those activities in a later tax year. Tax exemptions for disabled veterans You must meet any disclosure requirements of the IRS when you first group your activities and when you add or dispose of any activities in your groupings. Tax exemptions for disabled veterans   However, if the original grouping is clearly inappropriate or there is a material change in the facts and circumstances that makes the original grouping clearly inappropriate, you must regroup the activities and comply with any disclosure requirements of the IRS. Tax exemptions for disabled veterans   See Disclosure Requirement , later. Tax exemptions for disabled veterans Regrouping by the IRS. Tax exemptions for disabled veterans   If any of the activities resulting from your grouping is not an appropriate economic unit and one of the primary purposes of your grouping (or failure to regroup) is to avoid the passive activity rules, the IRS may regroup your activities. Tax exemptions for disabled veterans Rental activities. Tax exemptions for disabled veterans   In general, you cannot group a rental activity with a trade or business activity. Tax exemptions for disabled veterans However, you can group them together if the activities form an appropriate economic unit and: The rental activity is insubstantial in relation to the trade or business activity, The trade or business activity is insubstantial in relation to the rental activity, or Each owner of the trade or business activity has the same ownership interest in the rental activity, in which case the part of the rental activity that involves the rental of items of property for use in the trade or business activity may be grouped with the trade or business activity. Tax exemptions for disabled veterans Example. Tax exemptions for disabled veterans Herbert and Wilma are married and file a joint return. Tax exemptions for disabled veterans Healthy Food, an S corporation, is a grocery store business. Tax exemptions for disabled veterans Herbert is Healthy Food's only shareholder. Tax exemptions for disabled veterans Plum Tower, an S corporation, owns and rents out the building. Tax exemptions for disabled veterans Wilma is Plum Tower's only shareholder. Tax exemptions for disabled veterans Plum Tower rents part of its building to Healthy Food. Tax exemptions for disabled veterans Plum Tower's grocery store rental business and Healthy Food's grocery business are not insubstantial in relation to each other. Tax exemptions for disabled veterans Herbert and Wilma file a joint return, so they are treated as one taxpayer for purposes of the passive activity rules. Tax exemptions for disabled veterans The same owner (Herbert and Wilma) owns both Healthy Food and Plum Tower with the same ownership interest (100% in each). Tax exemptions for disabled veterans If the grouping forms an appropriate economic unit, as discussed earlier, Herbert and Wilma can group Plum Tower's grocery store rental and Healthy Food's grocery business into a single trade or business activity. Tax exemptions for disabled veterans Grouping of real and personal property rentals. Tax exemptions for disabled veterans   In general, you cannot treat an activity involving the rental of real property and an activity involving the rental of personal property as a single activity. Tax exemptions for disabled veterans However, you can treat them as a single activity if you provide the personal property in connection with the real property or the real property in connection with the personal property. Tax exemptions for disabled veterans Certain activities may not be grouped. Tax exemptions for disabled veterans   In general, if you own an interest as a limited partner or a limited entrepreneur in one of the following activities, you may not group that activity with any other activity in another type of business. Tax exemptions for disabled veterans Holding, producing, or distributing motion picture films or video tapes. Tax exemptions for disabled veterans Farming. Tax exemptions for disabled veterans Leasing any section 1245 property (as defined in section 1245(a)(3) of the Internal Revenue Code). Tax exemptions for disabled veterans For a list of section 1245 property, see Section 1245 property under Activities Covered by the At-Risk Rules , later. Tax exemptions for disabled veterans Exploring for, or exploiting, oil and gas resources. Tax exemptions for disabled veterans Exploring for, or exploiting, geothermal deposits. Tax exemptions for disabled veterans   If you own an interest as a limited partner or a limited entrepreneur in an activity described in the list above, you may group that activity with another activity in the same type of business if the grouping forms an appropriate economic unit as discussed earlier. Tax exemptions for disabled veterans Limited entrepreneur. Tax exemptions for disabled veterans   A limited entrepreneur is a person who: Has an interest in an enterprise other than as a limited partner, and Does not actively participate in the management of the enterprise. Tax exemptions for disabled veterans Activities conducted through another entity. Tax exemptions for disabled veterans   A personal service corporation, closely held corporation, partnership, or S corporation must group its activities using the rules discussed in this section. Tax exemptions for disabled veterans Once the entity groups its activities, you, as the partner or shareholder of the entity, may group those activities (following the rules of this section): With each other, With activities conducted directly by you, or With activities conducted through other entities. Tax exemptions for disabled veterans    You may not treat activities grouped together by the entity as separate activities. Tax exemptions for disabled veterans Personal service and closely held corporations. Tax exemptions for disabled veterans   You may group an activity conducted through a personal service or closely held corporation with your other activities only to determine whether you materially or significantly participated in those other activities. Tax exemptions for disabled veterans See Material Participation , earlier, and Significant Participation Passive Activities , later. Tax exemptions for disabled veterans Publicly traded partnership (PTP). Tax exemptions for disabled veterans   You may not group activities conducted through a PTP with any other activity, including an activity conducted through another PTP. Tax exemptions for disabled veterans Partial dispositions. Tax exemptions for disabled veterans   If you dispose of substantially all of an activity during your tax year, you may treat the part disposed of as a separate activity. Tax exemptions for disabled veterans However, you can do this only if you can show with reasonable certainty: The amount of deductions and credits disallowed in prior years under the passive activity rules that is allocable to the part of the activity disposed of, and The amount of gross income and any other deductions and credits for the current tax year that is allocable to the part of the activity disposed of. Tax exemptions for disabled veterans Disclosure Requirement For tax years beginning after January 24, 2010, the following disclosure requirements for groupings apply. Tax exemptions for disabled veterans You are required to report certain changes to your groupings that occur during the tax year to the IRS. Tax exemptions for disabled veterans If you fail to report these changes, each trade or business activity or rental activity will be treated as a separate activity. Tax exemptions for disabled veterans You will be considered to have made a timely disclosure if you filed all affected income tax returns consistent with the claimed grouping and make the required disclosure on the income tax return for the year in which you first discovered the failure to disclose. Tax exemptions for disabled veterans If the IRS discovered the failure to disclose, you must have reasonable cause for not making the required disclosure. Tax exemptions for disabled veterans New grouping. Tax exemptions for disabled veterans   You must file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. Tax exemptions for disabled veterans The statement must provide the names, addresses, and employer identification numbers (EINs), if applicable, for the activities being grouped as a single activity. Tax exemptions for disabled veterans In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. Tax exemptions for disabled veterans Addition to an existing grouping. Tax exemptions for disabled veterans   You must file a written statement with your original income tax return for the tax year in which you add a new activity to an existing group. Tax exemptions for disabled veterans The statement must provide the name, address, and EIN, if applicable, for the activity that is being added and for the activities in the existing group. Tax exemptions for disabled veterans In addition, the statement must contain a declaration that the activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. Tax exemptions for disabled veterans Regrouping. Tax exemptions for disabled veterans   You must file a written statement with your original income tax return for the tax year in which you regroup the activities. Tax exemptions for disabled veterans The statement must provide the names, addresses, and EINs, if applicable, for the activities that are being regrouped. Tax exemptions for disabled veterans If two or more activities are being regrouped into a single activity, the statement must contain a declaration that the regrouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. Tax exemptions for disabled veterans In addition, the statement must contain an explanation of the material change in the facts and circumstances that made the original grouping clearly inappropriate. Tax exemptions for disabled veterans Groupings by partnerships and S corporations. Tax exemptions for disabled veterans   Partnerships and S corporations are not subject to the rules for new grouping, addition to an existing grouping, or regrouping. Tax exemptions for disabled veterans Instead, they must comply with the disclosure instructions for grouping activities provided in their Form 1065, U. Tax exemptions for disabled veterans S. Tax exemptions for disabled veterans Return of Partnership Income, or Form 1120S, U. Tax exemptions for disabled veterans S. Tax exemptions for disabled veterans Income Tax Return for an S Corporation, whichever is applicable. Tax exemptions for disabled veterans   The partner or shareholder is not required to make a separate disclosure of the groupings disclosed by the entity unless the partner or shareholder: Groups together any of the activities that the entity does not group together, Groups the entity's activities with activities conducted directly by the partner or shareholder, or Groups an entity's activities with activities conducted through another entity. Tax exemptions for disabled veterans   A partner or shareholder may not treat activities grouped together by the entity as separate activities. Tax exemptions for disabled veterans Recharacterization of Passive Income Net income from the following passive activities may have to be recharacterized and excluded from passive activity income. Tax exemptions for disabled veterans Significant participation passive activities, Rental of property when less than 30% of the unadjusted basis of the property is subject to depreciation, Equity-financed lending activities, Rental of property incidental to development activities, Rental of property to nonpassive activities, and Licensing of intangible property by  pass-through entities. Tax exemptions for disabled veterans If you are engaged in or have an interest in one of these activities during the tax year (either directly or through a partnership or an S corporation), combine the income and losses from the activity to determine if you have a net loss or net income from that activity. Tax exemptions for disabled veterans If the result is a net loss, treat the income and losses the same as any other income or losses from that type of passive activity (trade or business activity or rental activity). Tax exemptions for disabled veterans If the result is net income, do not enter any of the income or losses from the activity or property on Form 8582 or its worksheets. Tax exemptions for disabled veterans Instead, enter income or losses on the form and schedules you normally use. Tax exemptions for disabled veterans However, see Significant Participation Passive Activities , later, if the activity is a significant participation passive activity and you also have a net loss from a different significant participation passive activity. Tax exemptions for disabled veterans Limit on recharacterized passive income. Tax exemptions for disabled veterans   The total amount that you treat as nonpassive income under the rules described later in this discussion for significant participation passive activities, rental of nondepreciable property, and equity-financed lending activities cannot exceed the greatest amount that you treat as nonpassive income under any one of these rules. Tax exemptions for disabled veterans Investment income and investment expense. Tax exemptions for disabled veterans   To figure your investment interest expense limitation on Form 4952, treat as investment income any net passive income recharacterized as nonpassive income from rental of nondepreciable property, equity-financed lending activity, or licensing of intangible property by a pass-through entity. Tax exemptions for disabled veterans Significant Participation Passive Activities A significant participation passive activity is any trade or business activity in which you participated for more than 100 hours during the tax year but did not materially participate. Tax exemptions for disabled veterans If your gross income from all significant participation passive activities is more than your deductions from those activities, a part of your net income from each significant participation passive activity is treated as nonpassive income. Tax exemptions for disabled veterans Corporations. Tax exemptions for disabled veterans   An activity of a personal service corporation or closely held corporation is a significant participation passive activity if both of the following statements are true. Tax exemptions for disabled veterans The corporation is not treated as materially participating in the activity for the year. Tax exemptions for disabled veterans One or more individuals, each of whom is treated as significantly participating in the activity, directly or indirectly hold (in total) more than 50% (by value) of the corporation's outstanding stock. Tax exemptions for disabled veterans Worksheet A. Tax exemptions for disabled veterans   Complete Worksheet A. Tax exemptions for disabled veterans Significant Participation Passive Activities , below, if you have income or losses from any significant participation activity. Tax exemptions for disabled veterans Begin by entering the name of each activity in the left column. Tax exemptions for disabled veterans Column (a). Tax exemptions for disabled veterans   Enter the number of hours you participated in each activity and total the column. Tax exemptions for disabled veterans   If the total is more than 500, do not complete Worksheet A or B. Tax exemptions for disabled veterans None of the activities are passive activities because you satisfy test 4 for material participation. Tax exemptions for disabled veterans (See Material participation tests , earlier. Tax exemptions for disabled veterans ) Report all the income and losses from these activities on the forms and schedules you normally use. Tax exemptions for disabled veterans Do not include the income and losses on Form 8582. Tax exemptions for disabled veterans Column (b). Tax exemptions for disabled veterans   Enter the net loss, if any, from the activity. Tax exemptions for disabled veterans Net loss from an activity means either: The activity's current year net loss (if any) plus prior year unallowed losses (if any), or The excess of prior year unallowed losses over the current year net income (if any). Tax exemptions for disabled veterans Enter -0- here if the prior year unallowed loss is the same as the current year net income. Tax exemptions for disabled veterans Column (c). Tax exemptions for disabled veterans   Enter net income (if any) from the activity. Tax exemptions for disabled veterans Net income means the excess of the current year's net income from the activity over any prior year unallowed losses from the activity. Tax exemptions for disabled veterans Column (d). Tax exemptions for disabled veterans   Combine amounts in the Totals row for columns (b) and (c) and enter the total net income or net loss in the Totals row of column (d). Tax exemptions for disabled veterans If column (d) is a net loss, skip Worksheet B, Significant Participation Activities With Net Income. Tax exemptions for disabled veterans Include the income and losses in Worksheet 3 of Form 8582 (or Worksheet 2 in the Form 88