Passive Activity — Instruction 8582

Take into account only passive activity income and passive activity deductions to figure your net income or net loss from all passive activities or any passive activity.

If your passive activity is reported on Schedule C, E, or F, and the activity has no prior-year unallowed losses or any gain or loss from the disposition of assets or an interest in the activity, take into account only the passive activity income and passive activity deductions from the activity to figure the amount to enter on Form 8582.

If you own an interest in a passive activity through a partnership or an S corporation, the partnership or S corporation will generally provide you with the net income or net loss from the passive activity. If, however, the partnership or S corporation must state an item of gross income or deduction separately to you, and the gross income or deduction is passive activity gross income or a passive activity deduction (respectively), include that amount in the net income or net loss entered on Form 8582.

Caution: The partnership or S corporation doesn’t have a record of your prior-year unallowed losses from the passive activities of the partnership or S corporation. If you had prior-year unallowed losses from these activities, they can be found in column (c) of your 2024 Part VIII.

Passive Activity Income To figure your overall gain or loss from all passive activities or any passive activity, take into account only passive activity income. Don’t enter income that isn’t passive activity income on Form 8582.

Passive activity income includes all income from passive activities (with certain exceptions described in Temporary Regulations section 1.469-2T(c)(2) and Regulations section 1.469-2(c)(2)), including gain from the disposition of an interest in a passive activity and from the disposition of property used in a passive activity at the time of the disposition.

Passive activity income doesn’t include the following.

Income from an activity that isn’t a passive activity.
Portfolio income, including interest (other than self-charged interest treated as passive activity income, discussed later), dividends, annuities, and royalties not derived in the ordinary course of a trade or business, and gain or loss from the disposition of property that produces portfolio income or is held for investment (see section 163(d)(5)). See Temporary Regulations section 1.469-2T(c)(3).
Alaska Permanent Fund dividends.
Personal service income, including salaries, wages, commissions, self-employment income from trade or business activities in which you materially participated for the tax year, deferred compensation, taxable social security and other retirement benefits, and payments from partnerships to partners for personal services. See Temporary Regulations section 1.469-2T(c)(4).
Income from positive section 481 adjustments allocated to activities other than passive activities. See Temporary Regulations section 1.469-2T(c)(5).

Instructions for Form 8582 (2025) 7

Income or gain from investments of working capital.
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 under the rule excluding working interests in oil and gas wells from passive activities (see item 3 under Activities That Are Not Passive Activities, earlier). See Regulations section

1.469-2(c)(6).

Any income from intangible property if your personal efforts significantly contributed to the creation of the property.
Any income treated as not from a passive activity under Temporary Regulations section 1.469-2T(f) and Regulations section 1.469-2(f). See Recharacterization of Passive Income , later.
Losses from dispositions of property that produce portfolio income or property held for investment.

Passive activity deductions include any loss from a disposition of property used in a passive activity at the time of the disposition and any loss from a disposition of less than your entire interest in a passive activity. See Dispositions , later, for the treatment of losses upon disposition of your entire interest in an activity.

Passive activity deductions don’t include the following.

Deductions for expenses (other than interest expense) that are clearly and directly allocable to portfolio income.
Qualified home mortgage interest, capitalized interest expenses, and other interest expenses (except self-charged interest treated as a passive activity deduction (discussed next) and interest expenses properly allocable to passive activities).

• Overall gain from any interest in a PTP (see item 2 under Passive activity loss rules for partners in PTPs, later).

State, local, and foreign income tax refunds.
Income from a covenant not to compete.
Any reimbursement of a casualty or theft loss included in income as recovery of all or part of a prior-year loss deduction if the deduction for the loss wasn’t treated as a passive activity deduction.
Cancellation of debt income to the extent that at the time the debt was discharged, the debt wasn’t properly allocable under Temporary Regulations section 1.163-8T to passive activities.
State, local, and foreign income taxes.
Charitable contribution deductions.
Net operating loss deductions, percentage depletion carryovers under section 613A(d), and capital loss carryovers.
Deductions and losses that would’ve been allowed for tax years beginning before 1987, but for basis or at-risk limitations.
Net negative section 481 adjustments allocated to activities other than passive activities. See Temporary Regulations section 1.469-2T(d)(7).

Recharacterization of Passive Income Certain income from passive activities must be recharacterized and excluded from passive activity income. The amount of income recharacterized equals the net income from the sources given below. If during the tax year you received net income from any of these sources (either directly or through a partnership or an S corporation), see Pub. 925 to find out how to report net income or loss from these sources. For more information, see Temporary Regulations section 1.469-2T(f) and Regulations section 1.469-2(f).

Deductions for losses attributable to a federally declared disaster.

Self-Charged Interest 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. 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. This includes both loans you made to the partnership or S corporation and loans the partnership or S corporation made to you. 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.

The self-charged interest rules don’t apply to your interest in a partnership or S corporation if the entity made an election under Regulations section 1.469-7(g) to avoid the application of these rules. For more details on the self-charged interest rules, see Regulations section 1.469-7.