Passive Activity — Instruction 8810

Take into account only passive activity income and passive activity deductions to figure the corporation's overall gain or overall loss from all passive activities or any passive activity. In figuring the PAL, a closely held corporation subtracts both passive activity income and net active income from its passive activity deductions. See the instructions for line 2, later, for the definition of net active income.

Self-Charged Interest Certain “self-charged” interest income or expense can 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 expense result from loans between the corporation and a partnership in which the corporation had a direct or indirect ownership interest. It may also result from loans between one partnership and another if each owner in the borrowing entity has the same proportional ownership interest in the lending entity. The self-charged interest rules do not apply to the corporation's partnership interest if the partnership made an election under Regulations section 1.469-7(g) to avoid the application of these rules. See Regulations section 1.469-7 for details.

Activities conducted through partner- ships and other C corporations sub- ject to section 469. Once a partnership or corporation determines its activities under these rules, a partner or shareholder can use these rules to group those activities with:

Each other,
Activities conducted directly by the partner or shareholder, or
Activities conducted through other partnerships and corporations.

A partner or shareholder cannot treat as separate activities those activities

Instructions for Form 8810 (2025) 5

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

interest treated as a passive activity deduction (see Self-Charged Interest , earlier). For example, capitalized interest expense is not a passive activity deduction.

Losses from dispositions of property that produce portfolio income or property held for investment.
State, local, and foreign income taxes.
Charitable contribution deductions.
Net operating loss deductions, percentage depletion carryovers under section 613A(d), and capital loss carrybacks and carryovers.

Passive activity income does not include the following.

Income from activities that are not

passive activities, discussed earlier.

• Portfolio income, including interest, 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). See Self-Charged Interest, earlier, for an exception.

Recharacterization of Passive Income

Certain income from passive activities can be recharacterized and excluded from passive activity income. The amount of income recharacterized equals the net income from the sources described below. If during the tax year the corporation received net income from any of these sources (either directly or through a partnership), see Recharacterization of Passive Income in Pub. 925 for details on reporting net income or loss from these sources.

Income from the following sources may be subject to the net income recharacterization rules.

Significant participation passive activities. A significant participation passive activity is any trade or business activity (see Trade or Business Activities, earlier) in which the corporation is treated as having participated for more than 100 hours during the tax year but did not materially participate.
Rental of property when less than 30% of the unadjusted basis of the property is subject to depreciation.
Deductions and losses that would have 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).
Personal service income, including commissions and income from trade or business activities in which the corporation materially participated for the tax year. See Temporary Regulations section 1.469-2T(c)(4).
Passive equity-financed lending activities.
Rental of property incidental to a development activity.
Income from positive section 481 adjustments allocated to activities other than passive activities. See Temporary Regulations section 1.469-2T(c)(5).
Rental of property to a nonpassive activity.
Income or gain from investments of working capital.
Income from an oil or gas property if the corporation 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, as discussed in item 3 under Activities That Are Not Passive Activities,

earlier. See Regulations section 1.469-2(c)(6).

Any income treated as income 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.

Overall gain from any interest in a PTP. See Publicly Traded Partnerships (PTPs) , later.
Acquisition of an interest in a pass-through entity that licenses intangible property.
Deductions for losses from fire, storm, shipwreck, or other casualty, or from theft, if losses similar in cause and severity do not regularly recur in the activity.