Form 8582 Worksheet: How Much Passive Loss Can You Deduct?
Form 8582 allows passive losses only up to your passive income, plus up to $25,000 of active-participation rental loss that phases out between $100,000 and $150,000 of modified AGI (IRC §469(i)). Everything else carries forward. Enter your activities below to fill in lines 1a to 11 and see the loss that carries to next year.
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Simplified: no commercial revitalization deductions, publicly traded partnerships or former passive activities, and no allocation among activities (Parts VI to IX). Real estate professionals who materially participate do not use this form for those rentals.
What is the Form 8582 worksheet for?
Form 8582 decides how much of your passive activity loss you can deduct this year under IRC §469. A passive activity is a rental, or a business you do not materially participate in. Passive losses can offset only passive income; the rest is "unallowed" and carries forward to next year, attached to the activity, with no expiration (§469(b)). This page is the working version of the form. For the line-by-line explanation, read Form 8582 explained.
How does Part I net your activities?
Part I splits activities into two groups. Rentals in which you actively participated go on lines 1a to 1d; everything else passive (other rentals, K-1 businesses, syndications) goes on lines 2a to 2d. For each group you enter activities with net income (a), activities with net loss (b) and prior years' unallowed losses (c), then combine them (d). Line 3 combines 1d and 2d. If line 3 is zero or more, every loss is allowed this year, including the prior-year unallowed losses, and you stop there.
How is the $25,000 special allowance figured?
If line 3 is a loss and line 1d is a loss, Part II lets up to $25,000 of rental loss offset nonpassive income (§469(i)). The allowance shrinks by 50 cents for every dollar of modified AGI above $100,000, so it is gone at $150,000 (line 5 minus line 6, times 50% on line 8). Married filing separately and lived apart all year: $75,000 on line 5 and $12,500 maximum on line 8. Married filing separately and lived together at any time: no allowance at all. Line 9 is the smaller of line 4 and line 8.
| Modified AGI | Allowance (single or MFJ) |
|---|---|
| $100,000 or less | $25,000 |
| $110,000 | $20,000 |
| $130,000 | $10,000 |
| $150,000 or more | $0 |
Worked example: a rental loss with a phase-out
These are the calculator's default numbers. A single filer with modified AGI of $130,000 has a rental with a $20,000 current loss and $10,000 of prior-year unallowed loss, plus a syndication K-1 with $4,000 of passive income.
- Line 1b is $20,000, line 1c is $10,000, so line 1d is a $30,000 loss. Line 2a and 2d are $4,000. Line 3 is a $26,000 loss.
- Line 4 is $26,000 (the smaller loss of 1d and 3). Line 7 is $150,000 minus $130,000 = $20,000; line 8 is 50% of that, $10,000. Line 9 is $10,000.
- Line 10 is the $4,000 of passive income. Line 11, total losses allowed, is $14,000.
- Of the $30,000 of losses, $16,000 is unallowed and carries to next year.
What happens to suspended losses when you sell?
A disposition of your entire interest in an activity, to an unrelated party, in a fully taxable transaction frees that activity's losses (§469(g)(1)(A)). The instructions have you combine the gain on the sale with the current-year result and the prior-year unallowed losses. If the total is a loss, the activity stays off Form 8582 and all of its losses are allowed against any income. If it is a gain, the activity goes on the form, and the gain is passive income that absorbs other passive losses too. Check "Sold my entire interest" on an activity to see this.
On an installment sale, §469(g)(3) releases the losses in proportion to the gain you recognize: the instructions multiply the overall loss by the gain recognized this year divided by the gain not yet recognized at the start of the year. Meanwhile each year's recognized installment gain is itself passive income on this form. That pacing, losses released alongside gain under §453, is what The Waterfall Strategy is about. Note that §1245 recapture is recognized in full in the year of sale on an installment sale (§453(i)), and unrecaptured §1250 gain comes out of the earliest payments (Reg. §1.453-12). See installment sales and passive losses and suspended passive losses when you sell a rental.
Where to go next
- Passive loss carryover rules: how unallowed losses carry forward.
- The $25,000 rental loss allowance in detail.
- Capital loss carryover calculator: the capital-loss side of the same sale.
- Tax loss harvesting to offset a real estate gain.
- Installment sale calculator: model a cash sale vs an installment sale.
Frequently asked questions
What is Form 8582 used for?
Form 8582 figures how much of your passive activity loss is allowed this year under IRC Section 469 and how much is unallowed and carried forward. You file it when you have passive losses, including prior-year unallowed losses, unless an exception in the instructions applies.
Who can take the $25,000 special allowance?
Individuals who actively participated in a rental real estate activity, with modified AGI under $150,000. It phases out by 50% of modified AGI over $100,000. Married filing separately: $12,500 with a $50,000 to $75,000 phase-out if you lived apart all year, and nothing if you lived together at any time (IRC 469(i)).
Do suspended passive losses expire?
No. Unallowed losses carry forward to the next year with no limit on the number of years (IRC 469(b)). They are freed by passive income, the special allowance, or a fully taxable disposition of your entire interest in the activity to an unrelated party.
How does selling a rental free suspended losses?
A fully taxable sale of your entire interest to an unrelated buyer frees the activity's current and prior-year losses (IRC 469(g)). If gain, current result and prior losses net to a loss, the losses are allowed against any income. On an installment sale, losses are released in proportion to the gain recognized each year.
Is installment sale gain passive income on Form 8582?
Gain recognized each year from selling a passive activity on the installment method keeps its passive character, so it is entered as passive income and can absorb passive losses in that year. Section 1245 recapture is recognized in the year of sale under IRC 453(i). Confirm the character of your gain with your CPA.
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Educational only, not tax, legal or investment advice. Examples are illustrative. Have your CPA or tax attorney review your facts before you act. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294) and is not a CPA or attorney. He is paid a commission only if a structured installment sale is funded; seller financing pays him nothing. Disclosures.