2005 Instructions for Schedule E (Form 1040)

Transcription

1 Department of the Treasury Internal Revenue Service 2005 Instructions for Schedule E (Form 1040) Supplemental partnerships, S corporations, estates, trusts, and residual interests in REMICs. Use the same format as on Schedule E. Income and Loss Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, You can attach your own schedule(s) to report income or loss from any of these sources. Enter separately on Schedule E the total income and the total loss for each part. Enclose loss figures in (parentheses). General Instructions person (other than you) having such an in- Passive Activity terest. A passive activity is any business activity Section references are to the Internal Revefied nonrecourse financing is treated as an and any rental activity, except as explained Qualified nonrecourse financing. Quali- in which you did not materially participate nue Code. amount at risk if it is secured by real prop- on this page and page E-2. If you are a erty used in an activity of holding real prop- limited partner, you generally are not At-Risk Rules erty that is subject to the at-risk rules. treated as having materially participated in Generally, you must complete Form 6198 Qualified nonrecourse financing is financ- the partnership s activities for the year. to figure your allowable loss if you have: ing for which no one is personally liable for The rental of real or personal property is A loss from an activity carried on as a repayment and is: generally a rental activity under the passive trade or business or for the production of Borrowed by you in connection with activity loss rules, but exceptions apply. If income, and holding real property (other than mineral your rental of property is not treated as a Amounts in the activity for which you property), rental activity, you must determine whether are not at risk. Not convertible from a debt obligation it is a trade or business activity, and if so, to an ownership interest, and whether you materially participated in the The at-risk rules generally limit the Loaned or guaranteed by any federal, activity for the tax year. amount of loss (including loss on the dispostate, or local government, or borrowed by sition of assets) you can claim to the See the Instructions for Form 8582 to you from a qualified person. amount you could actually lose in the activpated in the activity and for the definition determine whether you materially partici- ity. However, the at-risk rules do not apply Qualified person. A qualified person is a to losses from an activity of holding real person who actively and regularly engages of rental activity. property, if you acquired your interest in in the business of lending money, such as a See Pub. 925 for special rules that apply the activity before 1987 and the property bank or savings and loan association. A to rentals of: was placed in service before The ac- qualified person cannot be: Substantially nondepreciable proptivity of holding mineral property does not Related to you (unless the nonre- erty, qualify for this exception. course financing obtained is commercially reasonable and on the same terms as loans Property incidental to development In most cases, you are not at risk for involving unrelated persons), activities, and amounts such as the following. The seller of the property (or a person Property to activities in which you Nonrecourse loans used to finance the related to the seller), or materially participate. activity, to acquire property used in the ac- A person who receives a fee due to Activities That Are Not Passive tivity, or to acquire your interest in the acyour investment in real property (or a per- Activities tivity that are not secured by your own son related to that person). property (other than property used in the Activities of real estate professionals. If activity). However, there is an exception For more details about the at-risk rules, you were a real estate professional in 2005, for certain nonrecourse financing borrowed see the Instructions for Form 6198 and Pub. any rental real estate activity in which you by you in connection with holding real 925. materially participated is not a passive ac- property (other than mineral property). See tivity. You were a real estate professional Passive Activity Loss Rules Qualified nonrecourse financing on this only if you met both of the following conpage. The passive activity loss rules may limit the ditions. Cash, property, or borrowed amounts amount of losses you can deduct. These 1. More than half of the personal servrules apply to losses in Parts I, II, and III, used in the activity (or contributed to the ices you performed in trades or businesses activity, or used to acquire your interest in and line 40 of Schedule E. were performed in real property trades or the activity) that are protected against loss Losses from passive activities may be businesses in which you materially particisubject first to the at-risk rules. Losses de- pated. by a guarantee, stop-loss agreement, or other similar arrangement (excluding casu- ductible under the at-risk rules are then 2. You performed more than 750 hours alty insurance and insurance against tort subject to the passive activity loss rules. of services in real property trades or busiliability). You generally can deduct losses from nesses in which you materially partici- Amounts borrowed for use in the ac- passive activities only to the extent of in- pated. tivity from a person who has an interest in come from passive activities. An exception the activity (other than as a creditor) or who applies to certain rental real estate activities For purposes of this rule, each interest in is related, under section 465(b)(3)(C), to a (explained on page E-2). rental real estate is a separate activity, un- E-1 Cat. No T

2 less you elect to treat all your interests in c. Your overall net loss from these ac- Any transaction that is the same as or rental real estate as one activity. To make tivities is $25,000 or less ($12,500 or less if substantially similar to tax avoidance transthis election, attach a statement to your married filing separately); actions identified by the IRS. original tax return that declares you are a d. You have no current or prior year Any transaction offered under condiqualifying taxpayer for the year and you are unallowed credits from passive activities; tions of confidentiality for which you paid making the election under section and an advisor a minimum fee. 469(c)(7)(A). The election applies for the e. Your modified adjusted gross income year made and all later years in which you Any transaction for which you have (defined below) is $100,000 or less are a real estate professional. You can re- contractual protection against disallowance ($50,000 or less if married filing sepavoke the election only if your facts and of the tax benefits. rately). circumstances materially change. Any transaction resulting in a loss of at least $2 million in any single tax year or If you are married filing jointly, either Active participation. You can meet the ac- $4 million in any combination of tax years. you or your spouse must meet both of the tive participation requirement without reg- (At least $50,000 for a single tax year if the above conditions, without taking into ac- ular, continuous, and substantial loss arose from a foreign currency transaccount services performed by the other involvement in real estate activities. But tion defined in section 988(c)(1), whether spouse. you must have participated in making man- or not the loss flows through from an S A real property trade or business is any agement decisions or arranging for others corporation or partnership.) real property development, redevelopment, to provide services (such as repairs) in a significant and bona fide sense. Such manconstruction, reconstruction, acquisition, Any transaction resulting in a agement decisions include: book-tax difference of more than $10 mil- conversion, rental, operation, management, lion on a gross basis. leasing, or brokerage trade or business. Approving new tenants, Services you performed as an employee are Any transaction resulting in a tax Deciding on rental terms, not treated as performed in a real property credit of more than $250,000, if you held Approving capital or repair expenditrade or business unless you owned more the asset generating the credit for 45 days tures, and than 5% of the stock (or more than 5% of or less. the capital or profits interest) in the em- Other similar decisions. See the Instructions for Form 8886 for ployer. You are not considered to actively par- more details and exceptions. If you were a real estate professional for ticipate if, at any time during the tax year, 2005, complete Schedule E, line 43, on your interest (including your spouse s in- Tax Shelter Registration page 2. terest) in the activity was less than 10% by Number value of all interests in the activity. Other activities. The rental of your home Complete and attach Form 8271 if you are that you also used for personal purposes is Modified adjusted gross income. This is claiming or reporting any income, deducyour adjusted gross income from Form tion, loss, credit, or other tax benefit, from not a passive activity. See the instructions for line 2 on page E , line 38, without taking into account: an interest purchased or otherwise acquired A working interest in an oil or gas well Any passive activity loss, in a tax shelter required to be registered that you held directly or through an entity Rental real estate losses allowed for with the IRS. Form 8271 is used to report that did not limit your liability is not a real estate professionals (see Activities of the name, tax shelter registration number, passive activity even if you did not materi- real estate professionals that begin on page and identifying number of the tax shelter. ally participate. E-1), Royalty income not derived in the ordiroad retirement benefits, Taxable social security or tier 1 railnary course of a trade or business reported on Schedule E generally is not considered Deductible contributions to a tradiincome from a passive activity. tional IRA or certain other qualified retire- Specific Instructions For more details on passive activities, ment plans under section 219, The student loan interest deduction, Filers of Form 1041 see the Instructions for Form 8582 and Pub The tuition and fees deduction, If you are a fiduciary filing Schedule E with Form 1041, enter the estate s or trust s em- Exception for Certain Rental Real The domestic production activities deployer identification number (EIN) in the Estate Activities duction, space for Your social security number. If you meet all three of the following condiployment tax, The deduction for one-half of self-emtions, your rental real estate losses are not limited by the passive activity loss rules. If The exclusion from income of interest you do not meet all three of these condi- from series EE and I U.S. savings bonds Part I tions, see the Instructions for Form 8582 to used to pay higher education expenses, and find out if you must complete and attach Any excluded amounts under an Form 8582 to figure any losses allowed. employer s adoption assistance program. Income or Loss From Rental Real Estate and Royalties 1. Rental real estate activities are your only passive activities. Reportable Transaction 2. You do not have any prior year unal- Disclosure Statement lowed losses from any passive activities. Use Form 8886 to disclose information for Use Part I to report: 3. All of the following apply if you have each reportable transaction in which you Income and expenses from rental real an overall net loss from these activities: participated. Form 8886 must be filed for estate (including personal property leased each tax year that your federal income tax with real estate), and a. You actively participated (defined on liability is affected by your participation in Royalty income and expenses. this page) in all of the rental real estate the transaction. You may have to pay a activities; penalty if you are required to file Form See the instructions for lines 3 and 4 to b. If married filing separately, you lived 8886 but do not do so. The following are determine if you should report your rental apart from your spouse all year; reportable transactions. real estate and royalty income on Schedule E-2

3 C, Schedule C-EZ, or Form 4835 instead of (unless rented to that person under a real estate business, report the income on Schedule E. shared equity financing agreement), line 3. Use a separate column (A, B, or C) If you own a part interest in a rental real Anyone in your family (or in the fam- for each rental property. Include income estate property, report only your part of the ily of someone else who owns part of the received for renting a room or other space. income and expenses on Schedule E. unit), unless the unit is rented at a fair rental If you received services or property instead price to that person as his or her main of money as rent, report the fair market Complete lines 1 and 2 for each rental home, value of what you received as rental in- real estate property. Leave these lines blank come. for each royalty property. Anyone who pays less than a fair rental price for the unit, or Be sure to enter the total of all your rents If you have more than three rental real Anyone under an agreement that lets in the Totals column even if you have estate or royalty properties, complete and you use some other unit. only one property. attach as many Schedules E as you need to list them. But fill in the Totals column on Do not count as personal use: If you provided significant services to only one Schedule E. The figures in the Any day you spent working substan- the renter, such as maid service, report the Totals column on that Schedule E should tially full time repairing and maintaining rental activity on Schedule C or C-EZ, not be the combined totals of all your Schedinclude the furnishing of heat and light, the unit, even if family members used it for on Schedule E. Significant services do not ules E. If you are also using page 2 of recreational purposes on that day, or Schedule E, use the same Schedule E on cleaning of public areas, trash collection, or Any days you used the unit as your which you entered the combined totals for similar services. main home before or after renting it or of- Part I. fering it for rent, if you rented or tried to If you were in the real estate sales busirent it for at least 12 consecutive months (or ness, include on line 3 only the rent re- Personal property. Do not use Schedule E to report income and expenses from the for a period of less than 12 consecutive ceived from real estate (including personal rental of personal property, such as equipexchanged it). for investment or speculation. Do not use months at the end of which you sold or property leased with real estate) you held ment or vehicles. Instead, use Schedule C or C-EZ if you are in the business of renting Check Yes if you or your family used Schedule E to report income and expenses personal property. You are in the business the unit for personal purposes in 2005 more from rentals of real estate held for sale to of renting personal property if the primary than the greater of: customers in the ordinary course of your purpose for renting the property is income real estate sales business. Instead, use days, or or profit and you are involved in the rental Schedule C or C-EZ for these rentals. activity with continuity and regularity % of the total days it was rented to For more details on rental income use others at a fair rental price. If your rental of personal property is not TeleTax topic 414 (see page 8 of the Form a business, see the instructions for Form Otherwise, check No instructions) or see Pub , lines 21 and 36, to find out how to If you checked No, you can deduct all Rental income from farm production or report the income and expenses. your expenses for the rental part, subject to crop shares. Report farm rental income Extraterritorial income exclusion. Except the At-Risk Rules and the Passive Activity and expenses on Form 4835 if: as otherwise provided in the Internal Reve- Loss Rules explained beginning on page You received rental income based on nue Code, gross income includes all inand E-1. crops or livestock produced by the tenant, come from whatever source derived. Gross If you checked Yes and rented the income, however, does not include 80% of unit out for fewer than 15 days, do not You did not manage or operate the extraterritorial income that is qualifying report the rental income and do not deduct farm to any great extent. foreign trade income. Use Form 8873 to any rental expenses. If you itemize deducfigure the extraterritorial income exclusion. tions on Schedule A, you can deduct allow- Line 4 Report it on Schedule E as explained in the Instructions for Form able interest, taxes, and casualty losses. If you checked Yes and rented the unit out for at least 15 days, you may not be Report on line 4 royalties from oil, gas, or mineral properties (not including operating interests); copyrights; and patents. Use a Line 1 able to deduct all your rental expenses. You separate column (A, B, or C) for each roy- For rental real estate property only, show can deduct all of the following expenses for alty property. Be sure to enter the total of all of the following. the rental part on Schedule E. all your royalties in the Totals column The kind of property you rented (for Mortgage interest. even if you have only one source of royalexample, townhouse). Real estate taxes. ties. The street address, city or town, and Casualty losses. If you received $10 or more in royalties state. You do not have to give the ZIP code. Other rental expenses not related to during 2005, the payer should send you a Your percentage of ownership in the your use of the unit as a home, such as Form 1099-MISC or similar statement by property, if less than 100%. advertising expenses and rental agents January 31, 2006, showing the amount you fees. received. Line 2 If any income is left after deducting If you are in business as a self-employed If you rented out a dwelling unit that you these expenses, you can deduct other ex- writer, inventor, artist, etc., report your roy- also used for personal purposes during the penses, including depreciation, up to the alty income and expenses on Schedule C or year, you may not be able to deduct all the amount of remaining income. You can C-EZ. expenses for the rental part. Dwelling carry over to 2006 the amounts you cannot You may be able to treat amounts rededuct. unit (unit) means a house, apartment, conceived as royalties for the transfer of a dominium, or similar property. See Pub. 527 for details. patent or amounts received on the disposal A day of personal use is any day, or part of coal and iron ore as the sale of a capital of a day, that the unit was used by: Line 3 asset. For details, see Pub You for personal purposes, If you received rental income from real es- Enter on line 4 the gross amount of roy- Any other person for personal pur- tate (including personal property leased alty income, even if state or local taxes poses, if that person owns part of the unit with real estate) and you were not in the were withheld from oil or gas payments E-3

4 you received. Include taxes withheld by the Show auto rental or lease payments on 1098 from the recipient, report your deproducer on line 16. line 18 and depreciation on line 20. ductible mortgage interest on line 13. If you take the standard mileage rate, If you and at least one other person General Instructions for multiply the number of miles you drove (other than your spouse if you file a joint Lines 5 Through 21 your auto in connection with your rental return) were liable for and paid interest on activities by: Enter your rental and royalty expenses for the mortgage, and the other person received each property in the appropriate column cents for miles driven before Form 1098, report your share of the deduct- You can deduct all ordinary and necessary September 1, 2005, and ible interest on line 13. Attach a statement expenses, such as taxes, interest, repairs, 48.5 cents for miles driven after Au- to your return showing the name and adinsurance, management fees, agents com- gust 31, dress of the person who received Form missions, and depreciation. Include this amount and your parking fees On the dotted line next to line 13, and tolls on line 6. enter See attached. Do not deduct the value of your own labor or amounts paid for capital invest- If you claim any auto expenses (actual or the standard mileage rate), you must Line 14 ments or capital improvements. complete Part V of Form 4562 and attach You can deduct the cost of repairs made to Enter your total expenses for mortgage Form 4562 to your tax return. keep your property in good working condiinterest (line 12), total expenses before de- See Pub. 527 and Pub. 463 for details. tion. Repairs generally do not add signifipreciation expense or depletion (line 19), cant value to the property or extend its life. and depreciation expenses or depletion Examples of repairs are fixing a broken (line 20) in the Totals column even if you Line 10 lock or painting a room. Improvements that have only one property. Include on line 10 fees for tax advice and increase the value of the property or extend Renting out part of your home. If you rent the preparation of tax forms related to your its life, such as replacing a roof or renovat- out only part of your home or other proppreciated (that is, they cannot be deducted rental real estate or royalty properties. ing a kitchen, must be capitalized and de- erty, deduct the part of your expenses that Do not deduct legal fees paid or inin full in the year they are paid or incurred). applies to the rented part. curred to defend or protect title to property, to recover property, or to develop or im- See the instructions for line 20. Credit or deduction for access expendiprove property. Instead, you must capitaltures. You may be able to claim a tax ize these fees and add them to the Line 17 credit for eligible expenditures paid or inproperty s basis. curred in 2005 to provide access to your You can deduct the cost of ordinary and business for individuals with disabilities. necessary telephone calls related to your See Form 8826 for details. Lines 12 and 13 rental activities or royalty income (for ex- In general, to determine the interest example, calls to the renter). However, the You can also deduct up to $15,000 of pense allocable to your rental activities, base rate (including taxes and other qualified costs paid or incurred in 2005 to you must have records to show how the charges) for local telephone service for the remove architectural or transportation barproceeds of each debt were used. Specific first telephone line into your residence is a riers to individuals with disabilities and the tracing rules apply for allocating debt proelderly. personal expense and is not deductible. ceeds and repayment. See Pub. 535 for de- You cannot take both the credit and the tails. Line 20 deduction for the same expenditures. If you have a mortgage on your rental Depreciation is the annual deduction you property, enter on line 12 the amount of must take to recover the cost or other basis Line 6 interest you paid for 2005 to banks or other of business or investment property having a financial institutions. Be sure to enter the useful life substantially beyond the tax You can deduct ordinary and necessary total of all your mortgage interest in the year. Land is not depreciable. auto and travel expenses related to your rental activities, including 50% of meal ex- Totals column even if you have only one Depreciation starts when you first use penses incurred while traveling away from property. the property in your business or for the home. You generally can either deduct Do not deduct prepaid interest when you production of income. It ends when you your actual expenses or take the standard paid it. You can deduct it only in the year to deduct all your depreciable cost or other mileage rate. You must use actual expenses which it is properly allocable. Points, in- basis or no longer use the property in your if you used more than four vehicles simul- cluding loan origination fees, charged only business or for the production of income. taneously in your rental activities (as in fleet operations). You cannot use actual expenses for a leased vehicle if you previously used the standard mileage rate for that vehicle. for the use of money must be deducted over the life of the loan. If you paid $600 or more in interest on a mortgage during 2005, the recipient should send you a Form 1098 or similar statement by January 31, 2006, showing the total interest received from you. See the Instructions for Form 4562 to figure the amount of depreciation to enter on line 20. Be sure to enter the total of all your depreciation in the Totals column even if you have only one property. You can use the standard mileage rate for 2005 only if: You must complete and attach Form You owned the vehicle and used the 4562 only if you are claiming: If you paid more mortgage interest than standard mileage rate for the first year you is shown on your Form 1098 or similar Depreciation on property first placed placed the vehicle in service, or statement, see Pub. 535 to find out if you in service during 2005, You leased the vehicle and are using can deduct part or all of the additional inter- Depreciation on listed property (de- the standard mileage rate for the entire est. If you can, enter the entire deductible fined in the Instructions for Form 4562), lease period (except the period, if any, amount on line 12. Attach a statement to including a vehicle, regardless of the date it before 1998). your return explaining the difference. On was placed in service, or the dotted line next to line 12, enter See If you deduct actual auto expenses: A section 179 expense deduction or attached. amortization of costs that began in Include on line 6 the rental activity portion of the cost of gasoline, oil, repairs, Note. If the recipient was not a financial See Pub. 527 for more information on insurance, tires, etc., and institution or you did not receive a Form depreciation of residential rental property. E-4

5 See Pub. 946 for a more comprehensive You should receive a Schedule K-1 pay these expenses under the partnership guide to depreciation. from the partnership or S corporation. You agreement. See the instructions for line 27 If you own mineral property or an oil, should also receive a copy of the Partner s on page E-6 for how to report these exgas, or geothermal well, you may be able to or Shareholder s Instructions for Schedule penses. take a deduction for depletion. See K-1. Your copy of Schedule K-1 and its instructions will tell you where on your Report allowable interest expense paid Pub. 535 for details. return to report your share of the items. If or incurred from debt-financed acquisitions you did not receive these instructions with in Part II or on Schedule A depending on Line 22 your Schedule K-1, see page 7 of the Form the type of expenditure to which the inter- If you have amounts for which you are not 1040 instructions for how to get a copy. Do est is allocated. See Pub. 535 for details. at risk, use Form 6198 to determine the not attach Schedules K-1 to your return. Keep them for your records. If you claimed a credit for federal tax on amount of your deductible loss. Enter that gasoline or other fuels on your 2004 Form amount in the appropriate column of If you are treating items on your tax 1040 based on information received from Schedule E, line 22. In the space to the left return differently from the way the partner- the partnership, enter as income in column of line 22, enter Form Attach Form ship (other than an electing large partner to your return. For details on the (g) or column (j), whichever applies, the ship) or S corporation reported them on its at-risk rules, see page E-1. amount of the credit claimed for return, you may have to file Form If you are a partner in an electing large part- Part or all of your share of partnership Line 23 nership, you must report the items shown income or loss from the operation of the Do not complete line 23 if the amount on on Schedule K-1 (Form 1065-B) on your business may be considered net earnings line 22 is from royalty properties. tax return the same way that the partnership from self-employment that must be re- reported the items on Schedule K-1. ported on Schedule SE. Enter the amount If you have a rental real estate loss from from Schedule K-1 (Form 1065), box 14, a passive activity (defined on page E-1), the Special rules that limit losses. Please note code A (or from Schedule K-1 (Form amount of loss you can deduct may be lim- the following B), box 9 (code K1)), on Schedule ited by the passive activity loss rules. You If you have a current year loss, or a SE, after you reduce this amount by any may need to complete Form 8582 to figure prior year unallowed loss, from a partnerthe amount of loss, if any, to enter on line ship or an S corporation, see At-Risk Rules come. allowable expenses attributable to that in- 23. and Passive Activity Loss Rules on page If your rental real estate loss is not from E-1. Foreign partnerships. If you are a U.S. a passive activity or you meet the exception person, you may have to file Form 8865 if Partners and S corporation shareholders for certain rental real estate activities (exshould get a separate statement of income, any of the following applies. plained on page E-2), you do not have to expenses, deductions, and credits for each 1. You controlled a foreign partnership complete Form Enter the loss from activity engaged in by the partnership and S (that is, you owned more than a 50% direct line 22 on line 23. corporation. If you are subject to the at-risk or indirect interest in the partnership). rules for any activity, use Form 6198 to 2. You owned at least a 10% direct or figure the amount of any deductible loss. If indirect interest in a foreign partnership the activity is nonpassive, enter any deduct- while U.S. persons controlled that partner- Parts II and III ible loss from Form 6198 on the appropriate ship. line in Part II, column (h), of Schedule 3. You had an acquisition, disposition, If you need more space in Part II or III to list your income or losses, attach a continueign partnership that: E. or change in proportional interest of a for- ation sheet using the same format as shown If you have a passive activity loss, you in Part II or III. However, be sure to coma. Increased your direct interest to at generally need to complete Form 8582 to plete the Totals columns for lines 29a figure the amount of the allowable loss to least 10% or reduced your direct interest of and 29b, or lines 34a and 34b, as appropriat least 10% to less than 10%, or enter in Part II, column (f), for that activity. ate. If you also completed Part I on more But if you are a general partner or an S than one Schedule E, use the same Schedleast a 10% interest. corporation shareholder reporting your b. Changed your direct interest by at ule E on which you entered the combined share of a partnership or an S corporation totals in Part I. loss from a rental real estate activity and 4. You contributed property to a foreign you meet all three of the conditions listed partnership in exchange for a partnership Tax preference items. If you are a partner, on page E-2 under Exception for Certain interest if: a shareholder in an S corporation, or a ben- Rental Real Estate Activities, you do not eficiary of an estate or trust, you must take a. Immediately after the contribution, have to complete Form Instead, enter into account your share of preferences and you owned, directly or indirectly, at least a your allowable loss in Part II, column (f). adjustments from these entities for the alternative 10% interest in the partnership, or minimum tax on Form 6251 or If you have passive activity income, b. The fair market value of the property Schedule I of Form complete Part II, column (g), for that activ- you contributed to the partnership in exity. change for a partnership interest, when added Part II to other contributions of property you If you have nonpassive income or losses, complete Part II, columns (h) made to the partnership during the preced- through (j), as appropriate. ing 12-month period, exceeds $100,000. Income or Loss From Partnerships Also, you may have to file Form 8865 to Partnerships and S See the Schedule K-1 instructions before report certain dispositions by a foreign Corporations entering on your return other partnership partnership of property you previously con- If you are a member of a partnership or joint venture or a shareholder in an S corporation, use Part II to report your share of the partnership or S corporation income (even if not received) or loss. items from a passive activity or income or loss from any publicly traded partnership. You can deduct unreimbursed ordinary and necessary expenses you paid on behalf of the partnership if you were required to E-5 tributed to that partnership if you were a partner at the time of the disposition. For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions.

6 S Corporations If you are a shareholder in an S corporation, your share of the corporation s aggregate losses and deductions (combined income, losses, and deductions) is limited to the ad- justed basis of your corporate stock and any debt the corporation owes you. Any loss or deduction not allowed this year because of the basis limitation can be carried forward and deducted in a later year subject to the basis limitation for that year. or net them against, any current year amounts from the partnership or S corporation. Enter PYA (prior year amount) in column (a) of the same line. If you are treating items on your tax return differently from the way the estate or trust reported them on its return, you may have to file Form If you have estimated taxes credited to you from a trust (Schedule K-1, box 13, Unreimbursed Partnership code A), enter ES payment claimed and Expenses the amount on the dotted line next to line You can deduct unreimbursed ordi- 37. Do not include this amount in the total nary and necessary partnership expenses on line 37. Instead, enter the amount on you paid on behalf of the partnership on Form 1040, line 65. If you are claiming a deduction for your Schedule E if you were required to pay A U.S. person who transferred property share of an aggregate loss, attach to your these expenses under the partnership agree- to a foreign trust may have to report the return a computation of the adjusted basis ment (except amounts deductible only as income received by the trust as a result of of your corporate stock and of any debt the itemized deductions, which you must enter the transferred property if, during 2005, the corporation owes you. See the Schedule on Schedule A). trust had a U.S. beneficiary. See section K-1 instructions for details. Enter unreimbursed partnership ex An individual who received a distribupenses from nonpassive activities on a sep- tion from, or who was the grantor of or After applying the basis limitation, the arate line in column (h) of line 28. Do not transferor to, a foreign trust must also comdeductible amount of your aggregate losses combine these expenses with, or net them plete Part III of Schedule B (Form 1040) and deductions may be further reduced by against, any other amounts from the part- and may have to file Form In addithe at-risk rules and the passive activity nership. tion, the owner of a foreign trust must en- loss rules. See page E-1. If the expenses are from a passive acinformation return on Form 3520-A. sure that the trust files an annual Distributions of prior year accumulated tivity and you are not required to file Form earnings and profits of S corporations are 8582, enter the expenses related to a pasdividends and are reported on Form 1040, sive activity on a separate line in column (f) line 9a. of line 28. Do not combine these expenses Interest expense relating to the acquisiamounts from the partnership. with, or net them against, any other Part IV tion of shares in an S corporation may be fully deductible on Schedule E. For details, Enter UPE (unreimbursed partner- Income or Loss From Real see Pub ship expenses) in column (a) of the same Estate Mortgage Investment line. Your share of the net income of an S Conduits (REMICs) corporation is not subject to self-employ- If you are the holder of a residual interest in ment tax. Line 28 a REMIC, use Part IV to report your total For nonpassive income or loss (and passive share of the REMIC s taxable income or Line 27 income or losses for which you are not loss for each quarter included in your tax filing Form 8582), enter in the applicable year. You should receive Schedule Q If you answered Yes on line 27, follow column of line 28 your current year ordithe instructions below. If you fail to follow (Form 1066) and instructions from the nary income or loss from the partnership or REMIC for each quarter. Do not attach these instructions, the IRS may send you a S corporation. Report each related item renotice of additional tax due because the Schedules Q to your return. Keep them for quired to be reported on Schedule E (inamounts reported by the partnership or S your records. cluding items of income or loss stated corporation on Schedule K-1 do not match If you are treating REMIC items on the amounts you reported on your tax reble column of a separate line following the REMIC reported them on its return, you separately on Schedule K-1) in the applica- your tax return differently from the way the turn. line on which you reported the current year may have to file Form Losses Not Allowed in Prior ordinary income or loss. Also enter a Years Due to the At-Risk or Basis description of the related item (for exam- If you are the holder of a residual interple, depletion) in column (a) of the same est in more than one REMIC, attach a con- Limitations line. tinuation sheet using the same format as in Enter your total prior year unallowed Part IV. Enter the totals of columns (d) and losses that are now deductible on a separate If you are required to file Form 8582, (e) on Schedule E, line 39. If you also comline in column (h) of line 28. Do not comsee the Instructions for Form 8582 before pleted Part I on more than one Schedule E, bine these losses with, or net them against, completing Schedule E. use the same Schedule E on which you any current year amounts from the partner- entered the combined totals in Part I. ship or S corporation. REMIC income or loss is not income or Enter PYA (prior year amount) in loss from a passive activity. column (a) of the same line. Part III Note. If you are the holder of a regular Prior Year Unallowed Losses Income or Loss From interest in a REMIC, do not use Schedule E From a Passive Activity Not to report the income you received. Instead, Reported on Form 8582 Estates and Trusts report it on Form 1040, line 8a. Enter on a separate line in column (f) If you are a beneficiary of an estate or trust, of line 28 your total prior year unallowed use Part III to report your part of the in- Column (c). Report the total of the losses not reported on Form Such come (even if not received) or loss. You amounts shown on Schedule(s) Q, line 2c. losses include prior year unallowed losses should receive a Schedule K-1 (Form 1041) This is the smallest amount you are allowed that are now deductible because you did not from the fiduciary. Your copy of Schedule to report as your taxable income (Form have an overall loss from all passive activi- K-1 and its instructions will tell you where 1040, line 43). It is also the smallest ties or you disposed of your entire interest on your return to report the items from amount you are allowed to report as your in a passive activity in a fully taxable trans- Schedule K-1. Do not attach Schedule K-1 alternative minimum taxable income action. Do not combine these losses with, to your return. Keep it for your records. (AMTI) (Form 6251, line 28). E-6

7 If the amount in column (c) is larger 1. Your gross farming or fishing income circumstances. The estimated burden for than your taxable income would otherwise for 2004 or 2005 is at least two-thirds of individual taxpayers filing this form is inbe, enter the amount from column (c) on your gross income, and cluded in the estimates shown in the in- Form 1040, line 43. Similarly, if the 2. You file your 2005 tax return and pay structions for their individual income tax amount in column (c) is larger than your the tax due by March 1, return. The estimated burden for all other AMTI would otherwise be, enter the taxpayers who file this form is approved amount from column (c) on Form 6251, under OMB control number line 28. Enter Sch. Q on the dotted line to Paperwork Reduction Act Notice. We ask and is shown below. the left of this amount on Form 1040, line for the information on this form to carry out 43, and Form 6251, line 28, if applicable. the Internal Revenue laws of the United States. You are required to give us the information. Recordkeeping... 3 hr. We need it to ensure that you are Learning about the law or Note. These rules also apply to estates and trusts that hold a residual interest in a complying with these laws and to allow us the form... 1 hr., 13 min. REMIC. Be sure to make the appropriate to figure and collect the right amount of entries on the comparable lines on Form tax. Preparing the form... 1 hr., 27 min You are not required to provide the insending Copying, assembling, and the form to the IRS 34 min. formation requested on a form that is sub- Do not include the amount ject to the Paperwork Reduction Act unless shown in column (c) in the total the form displays a valid OMB control If you have comments concerning the on Schedule E, line 39. number. Books or records relating to a form accuracy of these time estimates or sugges- or its instructions must be retained as long tions for making this form simpler, we as their contents may become material in would be happy to hear from you. See the Column (e). Report the total of the the administration of any Internal Revenue instructions for the tax return with which amounts shown on Schedule(s) Q, line 3b. law. Generally, tax returns and return infor- this form is filed. If you itemize your deductions, include this mation are confidential, as required by secamount on Schedule A, line 22. tion The time needed to complete and file this form will vary depending on individual Part V Summary Line 42 You will not be charged a penalty for underpayment of estimated tax if: E-7