Definitions

Except as otherwise indicated, the following terms are defined below.

Personal service corporation. A personal service corporation is a corporation whose principal activity for the testing period (defined below) for the tax year is the performance of personal services. The services must be substantially performed by employee-owners. Employee-owners must own more than 10% of the fair market value (FMV) of the corporation's outstanding stock on the last day of the testing period.

Testing period. Generally, the testing period for a tax year is the prior tax year. The testing period for a new corporation starts with the first day of its first tax year and ends on the earlier of:

• The last day of its first tax year, or

• The last day of the calendar year in which the first tax year began.

Principal activity. The principal activity of a corporation is considered to be the performance of personal services if, during the testing period, the corporation's compensation costs for the performance of personal services are more than 50% of its total compensation costs.

Performance of personal services. Personal services are those performed in the health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting field (as defined in Temporary Regulations section 1.448-1T(e)). The term “performance of personal services” includes any activity involving the performance of personal services in these areas.

Substantial performance by employee-owners. Personal services are substantially performed by employee-owners if, for the testing period, more than 20% of the corporation's compensation costs for the performance of personal services are for services performed by employee-owners.

Instructions for Form 8810 (2025) Catalog Number 10357E Jul 24, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

lease, a service contract, or some other arrangement.

Exceptions An activity is not a rental activity if any of the following apply.

1. The average period of customer use (see below) of the rental property is:

a. 7 days or less, or b. 30 days or less and significant personal services (see below) were provided in making the rental property available for customer use.

Figure the average period of customer use for a class of property by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by the ratio of the gross rental income from that class to the activity's total gross rental income. The activity's average period of customer use equals the sum of these class-by-class average periods weighted by gross income. See Regulations section 1.469-1(e)(3)(iii) for more details.

Significant personal services include only services performed by individuals. To determine if personal services are significant, all the 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 the use of the property. Significant personal services do not include:

a. Services needed to permit the lawful use of the property;

b. Services to repair or improve property that would extend its useful life for a period substantially longer than the average rental period; and

c. Services that are similar to those commonly provided with long-term rentals of real estate, such as cleaning and maintenance of common areas, routine repairs, trash collection, elevator service, and security at entrances or perimeters.

2. Extraordinary personal services were provided in making the rental property available for customer use.

Extraordinary personal services are services provided in making rental property available for customer use only if they are performed by individuals and the customers' use of the property is incidental to their receipt of the services.

3. Rental of the property is incidental to a nonrental activity.

The rental of property is incidental to an activity of holding property for investment if the main purpose for holding the property

PAL limitations. Once a deduction or loss becomes allowable under these other limitations, the corporation must determine whether the deduction or loss is limited under the PAL rules. Examples of other limitations include the following.

• Basis.

• Section 163(j) interest deduction limitations.

• At-risk limitations. See Form 6198, At-Risk Limitations, for details on the at-risk rules.

In addition, certain allowances under the PAL rules may be limited under other rules. These include the following.

• Capital losses allowable under the PAL rules may be limited under the capital loss limitations of section 1211(a).

• Percentage depletion deductions allowable under the PAL rules may be limited under section 613A(d).