2023

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

Department of the Treasury

Internal Revenue Service

Section references are to the Internal 

Revenue Code unless otherwise noted.

Future Developments

For the latest information about 

developments related to Form 8810 and 

its instructions, such as legislation 

enacted after they were published, go to 

IRS.gov/Form8810.

General Instructions

Purpose of Form

Personal service corporations and closely 

held corporations use Form 8810 to figure 

the amount of any passive activity loss 

(PAL) or credit for the current tax year and 

the amount of losses and credits from 

passive activities allowed on the 

corporation's tax return. Form 8810 is also 

used to make the election to increase the 

basis of credit property when the 

corporation disposes of its interest in an 

activity for which it has an unused credit.

Generally, passive activities include 

trade or business activities in which the 

corporation did not materially participate 

for the tax year, and rental activities 

regardless of its participation.

Note. Individuals subject to the passive 

activity rules use Form 8582, Passive 

Activity Loss Limitations.

Who Must File

Personal service corporations and closely 

held corporations that have losses or 

credits (including prior year unallowed 

losses and credits) from passive activities 

must file Form 8810.

Passive activity loss (PAL). A personal 

service corporation has a PAL for the year 

if the total losses (including prior year 

unallowed losses) from its passive 

activities exceed the total income from its 

passive activities. A closely held 

corporation has a PAL for the year if the 

total losses (including prior year unallowed 

losses) from all its passive activities 

exceed the sum of the total income from 

all its passive activities and its net active 

income.

Passive activity credit. A personal 

service corporation has a passive activity 

credit for the year if its credits from passive 

activities (including prior year unallowed 

credits) exceed the tax attributable to net 

passive income. A closely held 

corporation has a passive activity credit for 

the year if its credits from passive activities 

(including prior year unallowed credits) 

exceed the sum of the tax attributable to 

net passive income and the tax 

attributable to net active income.

For more information, see Pub. 925, 

Passive Activity and At-Risk Rules.

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.

Employee-owner. A person is 

considered to be an employee-owner if the 

person is an employee of the corporation 

on any day of the testing period, and owns 

any outstanding stock of the corporation 

on any day of the testing period. Stock 

ownership is determined under the 

attribution rules of section 318, except that 

“any” is substituted for “50 percent or more 

in value” in section 318(a)(2)(C).

Closely held corporation. A corporation 

is a closely held corporation if at any time 

during the last half of the tax year more 

than 50% in value of its outstanding stock 

is directly or indirectly owned by or for not 

more than five individuals, and the 

corporation is not a personal service 

corporation.

Certain organizations are treated as 

individuals for this test (see section 

542(a)). For rules of determining stock 

ownership, see section 544 (as modified 

by section 465(a)(3)).

Other Passive Activity Terms

Some additional terms are defined below.

Net income. The excess of current year 

income over current year deductions from 

the activity. This includes any current year 

gains or losses from the disposition of 

assets or an interest in the activity.

Net loss. The excess of current year 

deductions over current year income from 

the activity. This includes any current year 

gains or losses from the disposition of 

assets or an interest in the activity.

Overall gain. The excess of the net 

income from the activity over the prior year 

unallowed losses from the activity.

Overall loss. The excess of the prior year 

unallowed losses from the activity over the 

net income from the activity or the prior 

year unallowed losses from the activity 

plus the net loss from the activity.

Prior year unallowed losses. The 

deductions and losses from an activity that 

were disallowed under the PAL limitations 

in a prior year and carried forward to the 

tax year under section 469(b). See 

Regulations section 1.469-1(f)(4).

Coordination With Other 

Limitations

Generally, items of deduction or loss from 

a passive activity are subject to other 

limitations before they are subject to the 

PAL limitations. Once a deduction or loss 

Aug 8, 2023 Cat. No. 10357E
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).

Special Rules for 

Consolidated Group

The passive activity loss and passive 

activity credit of an affiliated group of 

corporations filing a consolidated return 

for the tax year (a consolidated group) are 

determined by taking into account the 

following items of each member of the 

group.

• Passive activity gross income and 

deductions.

• Gain or loss on dispositions.

• Net active income (for a consolidated 

group treated as a closely held 

corporation).

• Credits from passive activities.

Activities That Are Not 

Passive Activities

The following are not classified as passive 

activities. Generally, income, losses, and 

credits from these activities are not 

entered on Form 8810. However, losses 

and credits from these activities may be 

subject to limitations other than the 

passive activity loss and credit rules.

1. Trade or business activities in 

which the corporation materially 

participated for the tax year.

2. Any rental real estate activity in 

which the corporation materially 

participated if the corporation was a 

closely held corporation that derived more 

than 50% of its gross receipts from real 

property trades or businesses in which it 

materially participated. For these 

purposes, gross receipts do not include 

portfolio income, as defined later under 

Passive Activity Income.

For purposes of this rule, each interest 

in rental real estate is a separate activity, 

unless the corporation elects to treat all 

interests in rental real estate as one 

activity. The corporation makes the 

election by attaching a statement to its 

original income tax return for the tax year. 

See Regulations section 1.469-9(g) for 

details on how to make or revoke this 

election. For information on making a late 

election, see Rev. Proc. 2011-34, 2011-24 

I.R.B. 875, available at IRS.gov/irb/

2011-24_IRB.

A real property trade or business is any 

real property development, 

redevelopment, construction, 

reconstruction, acquisition, conversion, 

rental, operation, management, leasing, or 

brokerage trade or business.

Note. If an activity qualifies for the 

exception described above in 2023, but 

has a prior year unallowed PAL, the prior 

year unallowed loss is treated as a loss 

from a former passive activity. See Former 

Passive Activities, later.

3. A working interest in an oil or gas 

well held directly or through an entity that 

does not limit the corporation's liability 

(such as a general partner's interest in a 

partnership). In this case, it does not 

matter whether the corporation materially 

participated in the activity for the tax year.

If, however, the corporation's liability 

was limited for part of the year (for 

example, the corporation converted its 

general partnership interest to a limited 

partnership interest during the year), some 

of the corporation's income and losses 

from the working interest may be treated 

as passive activity gross income and 

passive activity deductions. See 

Temporary Regulations section 

1.469-1T(e)(4) for more details.

4. An activity of trading personal 

property for the account of owners of 

interests in the activity. For purposes of 

this rule, personal property means 

property that is actively traded, such as 

stocks, bonds, and other securities. See 

Temporary Regulations section 

1.469-1T(e)(6) for more details.

Rental Activities

A rental activity is a passive activity even if 

the corporation materially participated in 

the activity unless it meets the 

requirements described in item 2 under 

Activities That Are Not Passive Activities 

above. In addition, if the corporation meets 

any of the five exceptions listed below, the 

rental of the property is not treated as a 

rental activity. See Reporting Income, 

Deductions, Losses, and Credits From 

Rental Activities, later, if the corporation 

meets any of the exceptions.

An activity is a rental activity if tangible 

property (real or personal) is used by 

customers or held for use by customers 

and the gross income (or expected gross 

income) from the activity represents 

amounts paid (or to be paid) mainly for the 

use of the property. It does not matter 

whether the use of the property is under a 

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 

-2- Instructions for Form 8810 (2023)
during the tax year is to realize a gain from 

its appreciation and the gross rental 

income is less than 2% of the smaller of 

the unadjusted basis or the FMV of the 

property.

Unadjusted basis is the cost of the 

property without regard to depreciation 

deductions or any other basis adjustment 

described in section 1016.

The rental of property is incidental to a 

trade or business activity if:

a. The corporation owned an interest 

in the trade or business activity during the 

tax year,

b. The rental property was mainly 

used in the trade or business activity 

during the tax year or during at least 2 of 

the 5 preceding tax years, and

c. The gross rental income from the 

property is less than 2% of the smaller of 

the unadjusted basis or the FMV of the 

property.

Lodging provided for the employer's 

convenience to an employee or the 

employee's spouse or dependents is 

incidental to the activity or activities in 

which the employee performs services.

4. The corporation customarily makes 

the rental property available during 

defined business hours for nonexclusive 

use by various customers.

5. The corporation provides property 

for use in a nonrental activity of a 

partnership or joint venture in its capacity 

as an owner of an interest in the 

partnership or joint venture.

Example. If a partner contributes the 

use of property to a partnership, none of 

the partner's distributive share of 

partnership income is income from a rental 

activity unless the partnership is engaged 

in a rental activity.

Also, a partner's gross income 

attributable to a guaranteed payment 

under section 707(c) is not income from a 

rental activity. The determination of 

whether the property used in the activity is 

provided in the partner's capacity as an 

owner of an interest in the partnership is 

made on the basis of all the facts and 

circumstances.

Reporting Income, Deductions, 

Losses, and Credits From 

Rental Activities

If the corporation meets any of the five 

exceptions listed above, the corporation's 

rental of the property is not a rental activity. 

The corporation then must determine:

1. Whether the rental of the property 

is a trade or business activity (see Trade or 

Business Activities, later) and, if so,

2. Whether the corporation materially 

participated in the activity for the tax year.

To report income, deductions, losses, 

or credits from a trade or business activity 

in which the corporation did not materially 

participate, see Trade or business 

activities without material participation 

under Reporting Income, Deductions, 

Losses, and Credits From Trade or 

Business Activities, later.

If the corporation meets any of the five 

exceptions and the activity is a trade or 

business activity in which the corporation 

materially participated, report any income, 

deduction, loss, or credit from the activity 

on the forms or schedules normally used.

If the rental activity did not meet any of 

the five exceptions, it is generally a 

passive activity. Special rules apply if the 

corporation conducted the rental activity 

through a publicly traded partnership 

(PTP) or if any of the rules described 

under Recharacterization of Passive 

Income, later, apply. See PAL rules for 

partners in PTPs under Special 

Instructions for PTPs, later.

If none of the special rules apply, use 

Worksheets 1 and 2 to determine the 

amount to enter in Part I of Form 8810 for 

each passive rental activity. If the 

corporation has credits from passive rental 

activities, use Worksheet 5 to figure the 

amount to enter in Part II of Form 8810. 

The worksheets are located later in the 

instructions.

Trade or Business 

Activities

A trade or business activity is an activity 

(other than a rental activity or an activity 

treated as incidental to an activity of 

holding property for investment) that:

1. Involves the conduct of a trade or 

business (within the meaning of section 

162),

2. Is conducted in anticipation of 

starting a trade or business, or

3. Involves research or experimental 

expenditures deductible under section 174 

(or that would be if the corporation chose 

to deduct rather than capitalize them).

Reporting Income, Deductions, 

Losses, and Credits From Trade 

or Business Activities

Trade or business activities with material participation. If the corporation 

materially participated in a trade or 

business activity, that activity is not a 

passive activity. Report the income, 

deductions, losses, and credits from the 

activity on the form or schedule normally 

used.

Trade or business activities without 

material participation. In general, use 

Worksheets 1 and 2 to determine the 

amount to enter in Part I of Form 8810 for 

each trade or business activity in which 

the corporation did not materially 

participate. If, however, the corporation 

held the activity through a PTP or the 

activity is a significant participation activity, 

special rules apply. See Publicly Traded 

Partnerships (PTPs), later. See Significant 

Participation Passive Activities under 

Recharacterization of Passive Income in 

Pub. 925 for details about how to report 

income or losses from significant 

participation passive activities.

In general, if the corporation has credits 

from passive activities, use Worksheet 5 to 

figure the amount to enter in Part II of Form 

8810. However, if the corporation held the 

activity through a PTP, special rules apply. 

See Credits From PTPs, later, for details 

about how to report credits from these 

activities.

Material Participation

Personal service corporations and closely 

held corporations materially or significantly 

participate in an activity if one or more 

individuals, each of whom would materially 

or significantly participate in the activity if 

the corporation's activity were the 

individual's activity, directly or indirectly 

own more than 50% (by value) of the 

corporation's outstanding stock. For this 

purpose, an individual's participation in all 

activities other than activities of the 

corporation is disregarded.

A closely held corporation also 

materially participates in an activity if the 

corporation satisfies the qualifying 

business requirements of section 465(c)

(7)(C) (without regard to section 465(c)(7)

(C)(iv) for the excluded business 

exception from the at-risk limitations).

These requirements are met if:

1. During the entire 12-month period 

ending on the last day of the tax year, 

substantially all the services of at least 

one full-time employee of the corporation 

were in the active management of the 

activity;

2. During the same period, 

substantially all the services of at least 

three full-time nonowner employees were 

directly related to the activity; and

3. The deductions attributable to the 

activity and allowed solely under sections 

162 and 404 exceed 15% of the gross 

income from the activity for the tax year.

Participation. For purposes of the 

material participation tests listed below, 

participation generally includes any work 

the individual did (without regard to the 

capacity in which the individual did it) in 

connection with an activity in which the 

corporation owned an interest at the time 

the individual did the work.

Work is not treated as participation, 

however, if the work is not work that an 

Instructions for Form 8810 (2023) -3-
owner of that type of activity would 

customarily do, and if one of the 

individual's main reasons for doing the 

work is to avoid the disallowance of losses 

or credits from the activity under the 

passive activity loss and credit rules.

Proof of participation. Participation 

in an activity can be proved by any 

reasonable means. Contemporaneous 

daily time reports, logs, or similar 

documents are not required if participation 

can be established by other reasonable 

means. Reasonable means for this 

purpose may include, but are not limited 

to, the identification of services performed 

over a period of time and the approximate 

number of hours spent performing the 

services during that period, based on 

appointment books, calendars, or 

narrative summaries.

Tests for investors. Work done as an 

investor in an activity is not treated as 

participation unless the individual was 

directly involved in the day-to-day 

management or operations of the activity. 

For purposes of this test, work done as an 

investor includes the following activities.

• Studying and reviewing financial 

statements or reports on operations of the 

activity.

• Preparing or compiling summaries or 

analyses of the finances or operations of 

the activity for the individual's own use.

• Monitoring the finances or operations of 

the activity in a nonmanagerial capacity.

If the individual is married for the tax 

year, the individual's participation in an 

activity includes any participation in the 

activity during the tax year by that 

individual's spouse, whether or not the 

spouse owned any interest in the activity 

and whether or not the individual and 

spouse file a joint return for the tax year.

Tests for individuals. An individual 

materially participates in an activity of the 

corporation if one or more of the following 

tests are satisfied.

1. The individual participated in the 

activity for more than 500 hours during the 

tax year.

2. The individual's participation in the 

activity for the tax year was substantially 

all of the participation in the activity of all 

individuals (including individuals who did 

not own any interest in the corporation or 

the activity) for the year.

3. The individual participated in the 

activity for more than 100 hours during the 

tax year, and that individual participated at 

least as much as any other individual 

(including individuals who did not own any 

interest in the corporation or the activity) 

for the year.

4. The activity is a significant 

participation activity for the individual for 

the tax year, and the individual 

participated in all significant participation 

activities during the year for more than 500 

hours. For this purpose, an individual's 

participation in all activities other than 

activities of the corporation is disregarded.

A significant participation activity is any 

trade or business activity in which the 

individual participated for more than 100 

hours during the year and in which the 

individual did not materially participate 

under any of the material participation 

tests (other than this fourth test). For more 

information regarding significant 

participation, see Pub. 925.

5. The individual materially 

participated in the activity (other than by 

meeting this fifth test) for any 5 (whether or 

not consecutive) of the 10 immediately 

preceding tax years.

6. The activity is a personal service 

activity in which the individual materially 

participated for any 3 (whether or not 

consecutive) preceding tax years.

An activity is a personal service activity 

if it involves the performance of personal 

services in the field of health, law, 

engineering, architecture, accounting, 

actuarial science, performing arts, or 

consulting, or in any other trade or 

business in which capital is not a material 

income-producing factor.

7. Based on all the facts and 

circumstances, the individual participated 

in the activity on a regular, continuous, and 

substantial basis during the tax year.

The individual does not materially 

participate in the activity under this 

seventh test, however, if the individual 

participated in the activity for 100 hours or 

less during the tax year. Participation in 

managing the activity does not count in 

determining whether the individual 

materially participated under the test if:

a. Any person (except that individual) 

received compensation for performing 

services in the management of the activity, 

or

b. Any person in the activity spent 

more hours during the tax year than that 

individual spent performing services in the 

management of the activity (regardless of 

whether the individual was compensated 

for the management services).

Special rules for limited partners. 

Generally, a limited partner cannot 

materially participate in an activity. 

However, the corporation is considered to 

materially participate in an activity in which 

it holds a limited partnership interest if one 

or more individuals (each of whom would 

materially participate in the activity under 

test 1, 5, or 6, discussed above, for the tax 

year if the corporation's activity were the 

individual's activity) directly or indirectly 

own more than 50% (by value) of the 

corporation's outstanding stock.

The corporation is not treated as a 

limited partner, however, if the corporation 

was also a general partner in the 

partnership at all times during the 

partnership's tax year ending with or within 

the corporation's tax year (or, if shorter, 

during the portion of the partnership's tax 

year in which the corporation directly or 

indirectly owned a limited partnership 

interest).

Consolidated groups. See Regulations 

section 1.469-1(h)(4) for rules for 

determining whether a consolidated group 

materially or significantly participates.

Grouping of Activities

Generally, one or more trade or business 

activities or rental activities may be treated 

as a single activity if the activities make up 

an appropriate economic unit for the 

measurement of gain or loss under the 

passive activity rules. Whether activities 

make up an appropriate economic unit 

depends on all the relevant facts and 

circumstances. The factors given the 

greatest weight in determining whether 

activities make up an appropriate 

economic unit are:

1. Similarities and differences in types 

of trades or businesses,

2. The extent of common control,

3. The extent of common ownership,

4. Geographical location, and

5. Interdependencies between or 

among the activities. This includes the 

extent to which the activities purchase or 

sell goods between or among themselves, 

involve products or services that are 

normally provided together, have the same 

customers, have the same employees, or 

are accounted for with a single set of 

books and records.

Example. A corporation has a 

significant ownership interest in a bakery 

and a movie theater in Baltimore and in a 

bakery and a movie theater in 

Philadelphia. Depending on all the 

relevant facts and circumstances, there 

may be more than one reasonable method 

for grouping the activities. For instance, 

the following groupings may or may not be 

permissible.

• A single activity.

• A movie theater activity and a bakery 

activity.

• A Baltimore activity and a Philadelphia 

activity.

• Four separate activities.

Once the corporation chooses a 

grouping under these rules, it must 

continue using that grouping in later tax 

years unless either:

• The corporation determines that the 

original grouping was clearly 

inappropriate, or

-4- Instructions for Form 8810 (2023)
• A material change in the facts and 

circumstances makes that grouping 

clearly inappropriate.

The IRS may regroup the corporation's 

activities if any of the activities resulting 

from the corporation's groupings are not 

an appropriate economic unit and one of 

the primary purposes of the grouping (or 

failure to regroup as required under 

Regulations section 1.469-4(e)) is to avoid 

the underlying purposes of the passive 

activity rules.

The corporation must comply with 

disclosure requirements for certain 

changes to the corporation's groupings as 

described in Disclosure Requirement, 

later.

Limitation on grouping certain activities. The following activities cannot be 

grouped together.

1. A rental activity with a trade or 

business activity unless the activities 

being grouped together make up an 

appropriate economic unit and:

a. The rental activity is insubstantial 

relative to the trade or business activity or 

vice versa, or

b. Each owner of the trade or 

business activity has the same 

proportionate ownership interest in the 

rental activity. If so, the rental activity 

portion involving the rental of property 

used in the trade or business activity can 

be grouped with the trade or business 

activity. See Rental activities under 

Grouping Your Activities in Pub. 925 for an 

example.

2. An activity involving the rental of 

real property with an activity involving the 

rental of personal property (except 

personal property provided in connection 

with the real property or vice versa).

3. Any activity with another activity in 

a different type of business and in which 

the corporation holds an interest as a 

limited partner or as a limited entrepreneur 

if that other activity is holding, producing, 

or distributing motion picture films or 

videotapes; farming; leasing section 1245 

property; or exploring for or exploiting oil 

and gas resources or geothermal 

deposits.

Activities conducted through partnerships and other C corporations subject 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 

grouped together by the partnership or 

corporation.

Partial disposition of an activity. 

The corporation can, for the tax year in 

which there is a disposition of substantially 

all of an activity, treat the part disposed of 

as a separate activity if it can prove with 

reasonable certainty:

1. The prior year unallowed losses 

and credits, if any, allocable to the part of 

the activity disposed of; and

2. The net income or loss and any 

credits for the year of disposition allocable 

to the disposed part of the activity.

Disclosure Requirement

A corporation is required to report to the 

IRS certain changes to the corporation’s 

groupings that occur during the tax year. 

For more information on these disclosure 

requirements, see Rev. Proc. 2010-13, 

2010-4 I.R.B. 329, available at IRS.gov/irb/

2010-04_IRB.

New grouping. The corporation must file 

a written statement with its original income 

tax return for the first tax year in which two 

or more activities are originally grouped as 

a single activity. The statement must 

provide the names, addresses, and 

employer identification numbers (EINs), if 

applicable, for the activities being grouped 

as a single activity. In addition, the 

statement must contain a declaration that 

the grouped activities make up an 

appropriate economic unit for the 

measurement of gain or loss under the 

passive activity rules.

Addition to an existing grouping. The 

corporation must file a written statement 

with its original income tax return for the 

tax year in which the corporation adds a 

new activity to an existing grouping. The 

statement must provide the name, 

address, and EIN, if applicable, for the 

activity that is being added and for the 

activities in the existing grouping. In 

addition, the statement must contain a 

declaration that the activities make up an 

appropriate economic unit for the 

measurement of gain or loss under the 

passive activity rules.

Regrouping. The corporation must file a 

written statement with its original income 

tax return for the tax year in which the 

corporation regroups activities under 

Regulations section 1.469-4(e)(2). The 

statement must provide the names, 

addresses, and EINs, if applicable, for the 

activities that are being regrouped. If the 

corporation regroups two or more activities 

into a single activity, the statement must 

contain a declaration that the regrouped 

activities make up an appropriate 

economic unit for the measurement of gain 

or loss under the passive activity rules. In 

addition, the statement must contain an 

explanation of why the original grouping 

was clearly inappropriate or the nature of 

the material change in the facts and 

circumstances that made the original 

grouping clearly inappropriate.

Reporting of pre-existing groupings required only upon change. The 

corporation is not required to file a written 

statement reporting the grouping of the 

trade or business activities and rental 

activities that have been made for tax 

years beginning before January 25, 2010 

(pre-existing groupings), until the 

corporation makes a change to the 

grouping.

Effect of failure to report. If the 

corporation fails to report these changes, 

each trade or business activity or rental 

activity will be treated as a separate 

activity. The corporation will be considered 

to have made a timely disclosure if it has 

filed all affected income tax returns 

consistent with the claimed grouping and 

makes the required disclosure on the 

income tax return for the year in which the 

corporation first discovered the failure to 

disclose. If the IRS first discovers the 

failure to disclose, however, the 

corporation must also have reasonable 

cause for not making the required 

disclosure.

Passive Activity Income 

and Deductions

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.

Instructions for Form 8810 (2023) -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.

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.

• 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).

• Income from positive section 481 

adjustments allocated to activities other 

than passive activities. See Temporary 

Regulations section 1.469-2T(c)(5).

• 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.

• State, local, and foreign income tax 

refunds.

• 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 was not 

treated as a passive activity deduction.

• Cancellation of debt income to the 

extent that at the time the debt was 

discharged it was not properly allocable 

under Temporary Regulations section 

1.163-8T to passive activities.

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.

• Passive equity-financed lending 

activities.

• Rental of property incidental to a 

development activity.

• Rental of property to a nonpassive 

activity.

• Acquisition of an interest in a 

pass-through entity that licenses 

intangible property.

Passive Activity Deductions

Passive activity deductions include all 

deductions from activities that are passive 

activities for the current tax year and all 

deductions from passive activities that 

were disallowed under the PAL rules in 

prior tax years and carried forward to the 

current tax year under section 469(b).

Passive activity deductions include 

losses from dispositions of property used 

in a passive activity at the time of the 

disposition and losses from a disposition 

of less than an entire interest in a passive 

activity. See Dispositions, later, for the 

treatment of losses upon certain 

dispositions of an entire interest in an 

activity.

Passive activity deductions do not 

include the following.

• Deductions for expenses (other than 

interest expense) that are clearly and 

directly allocable to portfolio income.

• Dividends-received deductions for 

dividends not included in passive activity 

gross income.

• Interest expense, other than interest 

expense properly allocable under 

Temporary Regulations section 1.163-8T 

to passive activities or self-charged 

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.

• 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).

• 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.

Former Passive Activities

A former passive activity is any activity that 

was a passive activity in a prior tax year 

but is not a passive activity in the current 

tax year. A prior year unallowed loss from 

a former passive activity is allowed to the 

extent of current year income from the 

activity. The following apply.

• If the current year net income from the 

activity is less than the prior year 

unallowed loss, enter the prior year 

unallowed loss and any current year net 

income from the activity on Form 8810 and 

the applicable worksheets.

• If the current year net income from the 

activity is more than or equal to the prior 

year unallowed loss from the activity, 

report the income and loss on the forms 

and schedules normally used; do not enter 

the amounts on Form 8810.

• If the activity has a net loss for the 

current year, enter the prior year 

unallowed loss (but not the current year 

loss) on Form 8810 and the applicable 

worksheets.

For rules about prior year unallowed 

credits from former passive activities, see 

section 469(f). To report a disposition of a 

former passive activity, follow the rules 

under Dispositions next.

Dispositions

Disposition of Less Than an 

Entire Interest

Gains and losses from the disposition of 

less than an entire interest in an activity 

are treated as part of the net income or net 

loss from the activity for the current year.

Note. A disposition of less than 

substantially all of an entire interest does 

-6- Instructions for Form 8810 (2023)
not trigger the allowance of prior year 

unallowed losses.

Disposition of an Entire Interest

If the corporation disposed of its entire 

interest in a passive activity or a former 

passive activity to an unrelated party in a 

fully taxable transaction during the tax 

year, the losses allocable to the activity for 

the year are not limited by the PAL rules. A 

fully taxable transaction is a transaction in 

which all the realized gain or loss is 

recognized.

If the corporation is using the 

installment method to report this kind of 

disposition, figure the loss for the current 

year that is not limited by the PAL rules by 

multiplying the corporation's overall loss 

(which does not include losses allowed in 

prior years) by the following fraction.

Gain recognized in the current year

Unrecognized gain as of the beginning 

of the current year

Unallowed passive activity credits, 

unlike unallowed PALs, are not allowable 

when the corporation disposes of its 

interest in an activity. However, the 

corporation can elect to increase the basis 

of the credit property by the amount of the 

original basis reduction of the property to 

the extent that the credit has not been 

allowed under the passive activity rules. 

Unallowed passive activity credits that are 

not used to increase the basis of the credit 

property are carried forward until they are 

allowed. To make the election, complete 

Part III of Form 8810. No basis adjustment 

can be elected on a partial disposition of 

the corporation's interest in a passive 

activity.

A partner in a PTP is not treated as 

having disposed of an entire interest in an 

activity of a PTP until there is an entire 

disposition of the partner's interest in the 

PTP.

See Dispositions in Pub. 925 for 

additional information about dispositions, 

including rules for dispositions by gift or 

death.

Reporting an Entire Disposition

When the corporation completely 

disposes of an entire interest in a passive 

activity or a former passive activity, there 

may be net income or loss and prior year 

unallowed losses from the activity. 

Combine all income, gains, deductions, 

and losses (including any prior year 

unallowed losses) from the activity for the 

tax year to see if the corporation has an 

overall gain or loss.

If the corporation has an overall gain 

from a passive activity and also has other 

passive activities to report on Form 8810, 

include the income, gains, deductions, 

and losses (including prior year unallowed 

losses) on Worksheet 1. If this is the 

corporation's only passive activity or a 

former passive activity, report the income, 

gains, deductions, and losses (including 

prior year unallowed losses) on the forms 

and schedules normally used, but do not 

enter them on the worksheets or on Form 

8810.

If the corporation has an overall loss 

when combining all income, gains, 

deductions, and losses (including any 

prior year unallowed losses) from the 

activity, report all the income, gains, 

deductions, and losses on the forms and 

schedules normally used, but do not enter 

them on the worksheets or on Form 8810.

Note. Members of a consolidated group, 

see Regulations section 1.469-1(h)(6) and 

Temporary Regulations sections 

1.469-1T(h)(7) and (8) for rules on 

applying the PAL rules to dispositions of 

property and other intercompany 

transactions.

Specific Instructions

Note. Complete Worksheets 1 and 2 

before completing Form 8810, Part I.

Worksheet 1

Use Worksheet 1 to figure the total current 

year income, gains, deductions, and 

losses for each passive activity.

Lines 1 through 4. Enter on these lines 

the gross receipts and other income from 

passive activities and passive activity 

gains reported on Schedule D (Form 

1120) and Form 8949, as applicable, and 

Form 4797, Sales of Business Property.

Worksheet 1—Computation of Income, 

Gains, Deductions, and Losses for 

Worksheet 2 Keep for Your Records

 Name of Activity: Name of Activity:

1. Gross receipts ............

2. Schedule D and Form 8949 gains 

(see instructions) ..........

3. Form 4797 gains ..........

4. Other passive income .......

5. Total income. Add lines 1 through 

4. Enter the result here and in 

Worksheet 2, column (a) ..... ▶

6. Deductions: ............

 a. Cost of goods sold .........

 b. Compensation of officers .....

 c. Salaries and wages ........

 d. Repairs and 

maintenance .............

 e. Bad debts ..............

 f. Rents .................

 g. Taxes and licenses .........

 h. Interest ................

 i. Depreciation .............

 j. Depletion ...............

 k. Advertising ..............

 l. Other deductions ..........

7. Total deductions. Add lines 6a 

through 6l ..............

8. Schedule D and Form 8949 losses 

(see instructions) ..........

9. Form 4797 losses ..........

10. Total deductions and losses. 

Add lines 7 through 9. Enter the 

result here and in Worksheet 2, 

column (b) .............. ▶

Instructions for Form 8810 (2023) -7-
Line 5. Enter total income on this line and 

in Worksheet 2, column (a).

Lines 6a through 6l. Enter passive 

activity deductions.

Lines 8 and 9. Enter on line 8 losses 

from passive activities reported on 

Schedule D (Form 1120) and Form 8949, 

as applicable. Enter on line 9 losses from 

passive activities reported on Form 4797.

Line 10. Enter total deductions and 

losses on this line and in Worksheet 2, 

column (b).

Gross receipts, gains from the sale of 

business assets, capital gains, and other 

passive income should also be entered on 

the forms and schedules normally used. 

Allowable passive activity deductions and 

losses are entered on the forms and 

schedules after Form 8810 is completed 

and the deductions and losses are 

allocated to the activities.

Worksheet 2

Columns (a) and (b). Enter in column 

(a) the total income for the current year 

shown on Worksheet 1, line 5. Enter in 

column (b) the total deductions and losses 

shown on Worksheet 1, line 10.

Column (c). Enter the prior year 

unallowed losses from Worksheet 4, 

column (c), located in the 2022 

Instructions for Form 8810.

Totals. Enter the totals from Worksheet 2, 

columns (a), (b), and (c), on Form 8810, 

lines 1a, 1b, and 1c, respectively.

Columns (d) and (e). Combine income, 

deductions, and losses in columns (a) 

through (c) for each activity. Enter any 

overall gain in column (d) or any overall 

loss in column (e). Do not enter the 

amounts from columns (d) and (e) on 

Form 8810. These amounts will be used 

when Form 8810 is completed to figure the 

loss allowed for the current year.

Part I. 2023 Passive 

Activity Loss

Lines 1d and 3

If line 1d or 3 shows net income or zero, all 

the deductions and losses are allowed 

including any prior year unallowed losses 

entered on line 1c. Enter the deductions 

on the appropriate lines of Form 1120, 

U.S. Corporation Income Tax Return. Also 

enter any losses from Form 4797 or Form 

8949 (and Schedule D (Form 1120)) on 

Form 1120, if applicable, including any 

prior year unallowed losses that are 

properly entered on those forms.

If the prior year unallowed losses 

include deductions that would have been 

reported on Form 1120, page 1, instead of 

on Form 4797 or Form 8949 (and 

Schedule D (Form 1120), as applicable), 

include the prior year unallowed losses on 

the appropriate line along with any current 

year deduction or loss from that line.

Example. The corporation had $1,000 

of deductions for current year repairs and 

maintenance and $500 of deductions for 

prior year unallowed repairs and 

maintenance. Enter $1,500 as the 

deduction for repairs and maintenance 

allowed from passive activities on the 

proper line.

Line 2. Closely Held 

Corporations

Closely held corporations can offset the 

loss, if any, on line 1d with net active 

income. Net active income is the 

corporation's taxable income for the tax 

year, determined without regard to the 

following items.

• Net passive income or loss.

• Portfolio income. See Passive Activity 

Income, earlier.

• Deductions attributable to portfolio 

income described in Temporary 

Regulations sections 1.469-2T(d)(2)(i), (ii), 

and (iv).

• Interest expense allocated under 

Temporary Regulations section 1.163-8T 

to a portfolio expenditure (within the 

meaning of Temporary Regulations 

section 1.163-8T(b)(6)).

• Gain on the disposition of substantially 

appreciated property formerly held for 

investment. See Regulations section 

1.469-2(c)(2)(iii)(F).

• Gross income from certain oil or gas 

properties treated under Regulations 

section 1.469-2(c)(6) as not from a 

passive activity.

• Gross income and deductions from any 

trade or business activity of trading certain 

personal property described in Temporary 

Regulations section 1.469-1T(e)(6), but 

only if the corporation did not materially 

participate in the activity for the tax year.

If the corporation disposed of its entire 

interest in a passive activity to an 

unrelated party in a fully taxable 

transaction, figure net active income by 

taking into account an overall loss from 

that activity only to the extent it exceeds 

overall gain from all other passive activities 

(the gain, if any, shown on Form 8810, 

line 1d).

If there is an overall loss from all other 

passive activities (Form 8810, line 1d, is a 

loss), figure net active income by taking 

into account all of the overall loss from that 

activity.

Line 4. Total Deductions and 

Losses Allowed

Worksheet 2, columns (d) and (e), show 

whether an activity had an overall gain or 

loss.

Overall gain. A corporation with an 

overall gain for any of the activities in 

Worksheet 2, column (d), will report all of 

the deductions and losses listed in 

Worksheet 1 and any prior year unallowed 

losses in Worksheet 2 for that activity on 

the appropriate lines of Form 1120 and on 

Form 8949 and Schedule D (Form 1120), 

or Form 4797, as applicable.

Overall loss. A corporation uses 

Worksheets 3 and 4 for any of the 

activities that show an overall loss in 

column (e). Use Worksheet 3 to figure the 

unallowed deductions and losses to be 

carried forward to Worksheet 4. Use 

Worksheet 4 to figure the allowed 

deductions and losses to report on the 

forms and schedules for 2023.

-8- Instructions for Form 8810 (2023)
Worksheet 2 for Form 8810, Lines 1a, 1b, and 1c Keep for Your Records

Name of Activity

Current Year Prior Year Overall Gain or Loss

(a) Income

 (Line 1a)

(b) Deductions and 

Losses (Line 1b)

(c) Unallowed 

Losses (Line 1c) (d) Gain (e) Loss

Totals. Enter on Form 8810, lines 

1a, 1b, and 1c .............. ▶

Worksheet 3—Allocation of Unallowed Deductions and Losses Keep for Your Records

If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to figure the unallowed deductions and losses for 

each activity.

If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses (including prior year unallowed losses) for 

that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120 and enter any losses on Form 4797, Form 8949, and 

Schedule D (Form 1120), as applicable.

Prior year unallowed losses from 2022. If there were prior year unallowed losses from 2022, include the prior year unallowed losses on the 

appropriate line along with any current year deduction or loss for that line. See the example in the instructions for lines 1d and 3, earlier. Prior year 

unallowed losses from Form 4797 and Form 8949 should have been kept separate in 2022, and should be identified as “prior year unallowed losses” 

on Form 4797 and Form 8949.

Column (a). Enter the loss from Worksheet 2, column (e).

Column (b). Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for each of the activities 

in column (b). The total of all the ratios should equal 1.00.

Column (c). Multiply the unallowed loss from Form 8810, line 3, by each of the ratios in column (b) and enter the results in column (c).

Name of Activity (a) Loss From

 Worksheet 2, Column (e) (b) Ratio (c) Unallowed Deductions and Losses

Totals .......................... ▶ 1.00

Worksheet 4

Use Worksheet 4 to allocate the unallowed 

deductions and losses for each activity 

among Form 1120 deductions and any 

losses to be reported on Form 4797, or 

Form 8949 and Schedule D (Form 1120), 

as applicable.

If the unallowed loss is reported on one 

form or schedule, skip the following 

example and complete Worksheet 4.

If the unallowed loss is from losses 

reported on more than one form or 

schedule, allocate the unallowed loss from 

among the net losses as follows.

Instructions for Form 8810 (2023) -9-
Worksheet 4—Allowed Deductions and Losses Keep for Your Records

Name of Activity: (a) Deductions and 

Losses (b) Ratio

(c) Unallowed 

Deductions and 

Losses

(d) Allowed 

Deductions and 

Losses

1. Form 1120 deductions:

a. Cost of goods sold ................

b. Compensation of officers ...........

c. Salaries and wages ...............

d. Repairs and maintenance ...........

e. Bad debts ......................

f. Rents ..........................

g. Taxes and licenses ................

h. Interest ........................

i. Depreciation .....................

j. Depletion .......................

k. Advertising .....................

l. Other deductions .................

Total Form 1120 deductions ......... ▶ 1.00

2. Schedule D and Form 8949 losses ......

3. Form 4797 losses ..................

Name of Activity: (a) Deductions and 

Losses (b) Ratio

(c) Unallowed 

Deductions and 

Losses

(d) Allowed 

Deductions and 

Losses

1. Form 1120 deductions:

a. Cost of goods sold ................

b. Compensation of officers ...........

c. Salaries and wages ...............

d. Repairs and maintenance ...........

e. Bad debts ......................

f. Rents ..........................

g. Taxes and licenses ................

h. Interest ........................

i. Depreciation .....................

j. Depletion .......................

k. Advertising .....................

l. Other deductions .................

Total Form 1120 deductions ......... ▶ 1.00

2. Schedule D and Form 8949 losses ......

3. Form 4797 losses ..................

-10- Instructions for Form 8810 (2023)
Example. The corporation has one 

passive activity. The activity has an 

unallowed loss of $18,000 in Worksheet 3, 

column (c), and the following net losses 

and net gain.

Form 1120

Gross receipts $100,000

Deductions 120,000

Net loss ($20,000)

Form 8949 Form 4797

Gain $1,000 Gain $5,000

Loss (2,000) Loss (2,000)

Net loss ($1,000) Net gain $3,000

Add the net losses of $20,000 and 

$1,000, for a total of $21,000. Divide the 

net loss reported on each form by the total 

of the net losses, and multiply the result by 

the unallowed loss of $18,000, as shown 

below.

Form 

1120: 

$20,000

$21,000 x $18,000 = $17,143

Form 

8949: 

 $1,000

$21,000 x $18,000 = $857

On Form 4797, report the $2,000 loss 

and the $5,000 gain. On Worksheet 4, 

enter the $17,143 of unallowed deductions 

allocated to Form 1120 in column (c) on 

the line for total Form 1120 deductions. 

Enter the $857 of unallowed Form 8949 

losses in column (c) of line 2. Use 

Worksheet 4 to allocate the $17,143 to the 

Form 1120 deductions and show the 

allowed and unallowed Form 8949 loss.

Line 1, column (a). Enter the current 

year deductions for each Form 1120 

expense (Worksheet 1, lines 6a through 

6l) plus any prior year unallowed Form 

1120 deduction for that activity. For 

example, if Worksheet 1, line 6i, shows 

current year depreciation for the activity of 

$2,200, and the activity had prior year 

unallowed depreciation of $1,200, enter 

$3,400 on Worksheet 4, line 1i, column 

(a).

Line 2, column (a). Enter any Form 8949 

losses (or any Schedule D (Form 1120) 

losses, as applicable) from Worksheet 1, 

line 8, plus any prior year unallowed 

losses from the 2022 Form 8949 for that 

activity.

Line 3, column (a). Enter any Form 4797 

losses from Worksheet 1, line 9, plus any 

prior year unallowed Form 4797 losses for 

that activity.

Line 1, column (b). Divide each of the 

individual Form 1120 deductions shown in 

column (a) by the total of all of the Form 

1120 deductions in column (a) and enter 

the ratio for each of the deductions in 

column (b). The total of the ratios must 

equal 1.00.

Column (c). Allocate the portion of the 

loss in Worksheet 3, column (c), among 

the Form 1120 deductions by multiplying 

the unallowed loss attributable to the total 

Form 1120 deductions by each of the 

ratios in column (b). Enter the portion of 

the unallowed loss in Worksheet 3, column 

(c), that is attributable to a Form 8949 (or 

Schedule D (Form 1120)) or Form 4797 

loss in column (c) of this worksheet.

Column (d). Subtract column (c) from 

column (a) and enter the results in this 

column. Enter the deductions allowed for 

Form 1120 on the proper lines of Form 

1120. Enter the allowed losses on the 

appropriate forms.

Publicly Traded 

Partnerships (PTPs)

A PTP is a partnership whose interests are 

traded on an established securities market 

or are readily tradable on a secondary 

market (or its substantial equivalent).

An established securities market 

includes any national securities exchange 

and any local exchange registered under 

the Securities Exchange Act of 1934 or 

exempted from registration because of the 

limited volume of transactions. It also 

includes any over-the-counter market.

A secondary market generally exists 

where a person stands ready to make a 

market in the interest. An interest is 

treated as readily tradable if the interest is 

regularly quoted by persons, such as 

brokers or dealers, who are making a 

market in the interest.

The substantial equivalent of a 

secondary market exists where there is no 

identifiable market maker, but holders of 

interests have a readily available, regular, 

and ongoing opportunity to sell or 

exchange interests through a public 

means of obtaining or providing 

information on offers to buy, sell, or 

exchange interests. Similarly, the 

substantial equivalent of a secondary 

market exists where prospective buyers 

and sellers have the opportunity to buy, 

sell, or exchange interests in a time frame 

and with the regularity and continuity that 

the existence of a market maker would 

provide.

Special Instructions for PTPs

Section 469(k) provides that the passive 

activity rules and limitations must be 

applied separately to items from each PTP.

Losses from passive activities the 

corporation holds through a PTP can 

generally be used only to offset income or 

gain from passive activities of the same 

PTP. Any unallowed loss from a PTP 

passive activity is carried forward and 

allowed in a tax year when the corporation 

has passive income from the same PTP or 

when the corporation disposes of its entire 

interest in that PTP to an unrelated person 

in a fully taxable transaction.

Income from passive activities the 

corporation holds through a PTP cannot 

be used to offset losses from passive 

activities the corporation holds through 

another PTP or losses from any other 

passive activities.

PAL rules for partners in PTPs. Do not 

include any income, gains, deductions, or 

losses from PTP passive activities on 

Form 8810. Instead, use the following 

rules to figure and report income, gains, 

deductions, and losses from passive 

activities held through each PTP that the 

corporation owned an interest in during 

the tax year.

1. Combine any current year income, 

gains, deductions, and losses, and prior 

year unallowed losses to see if there is an 

overall gain or loss. Include only the same 

types of income and losses that would be 

included in figuring net income or loss 

from a non-PTP passive activity (see 

Passive Activity Income and Deductions, 

earlier).

2. If there is an overall gain, the net gain 

portion (total income in excess of total 

deductions and losses) is nonpassive 

income. Report the income, deductions, 

and losses on the forms and schedules 

normally used.

3. If there is an overall loss (other than in 

a year in which the corporation disposed 

of its entire interest in the PTP), the 

deductions and losses are allowed to the 

extent of the income, and the excess 

deductions and losses are carried forward 

for use in a future year when there is 

income to offset them. Report the income 

and the loss allowed to the extent of 

income on the form or schedule normally 

used.

Part II. 2023 Passive 

Activity Credits

Use Form 8810, Part II, to figure the 

amount of credits allowed from passive 

activities for the current year and the 

amount that is unallowed and carried 

forward.

Worksheet 5

Complete Worksheet 5 before completing 

Part II. Use Worksheet 5 to figure the 

amounts to enter on Form 8810, lines 5a 

and 5b.

Column (a). Convert any current year 

qualified expenditures into credits and 

complete Form 3800, General Business 

Instructions for Form 8810 (2023) -11-
Credit, before beginning Worksheet 5. See 

Cooperatives next for special instructions 

for certain cooperatives.

Enter the credits from Form 3800, lines 

2, 23, and 32, in Worksheet 5, column (a). 

Enter "Form 3800, line" followed by the 

appropriate line number (2, 23, or 32) in 

the “From Form” column. Separate the 

credits by activity and by type before 

making entries in the worksheet. For 

example, a corporation has a distilled 

spirits credit from each of two passive 

activities. Enter each distilled spirits credit 

on separate lines in Worksheet 5, column 

(a). A corporation has a distilled spirits 

credit and a disabled access credit from 

the same passive activity. Enter the 

distilled spirits credit and the disabled 

access credit on separate lines in 

Worksheet 5, column (a).

Cooperatives. A closely held cooperative 

that is allocating part or all of a general 

business credit to patrons will need to 

enter the credits being allocated on 

Worksheet 5 so that the passive activity 

rules can be applied before any part of the 

credit is allocated to patrons. For this 

purpose, Form 3800 should be completed 

using only credits that will not be allocated 

to patrons. Credits that are being allocated 

to patrons should be picked up from the 

separate credit forms.

Column (b). In figuring this year's 

passive activity credit, the corporation 

must take into account any credits from 

passive activities disallowed for prior years 

and carried forward to this year adjusted, if 

required, for items such as recaptured 

credits (see Regulations section 

1.469-3(f)). Enter in Worksheet 5, column 

(b), the prior year unallowed credits from 

Worksheet 6, column (c), located in the 

2022 Instructions for Form 8810 (adjusted 

if required).

For rules about prior year unallowed 

credits from former passive activities, see 

section 469(f).

Line 7

If any of the following apply, enter -0- on 

line 7 and do not complete Part I or Part II 

of the Computation for Line 7, later.

• The corporation is a personal service 

corporation with a loss or zero on Form 

8810, line 1d.

• The corporation is a personal service 

corporation with net passive income on 

Form 8810, line 1d, and the corporation 

has an overall loss from the entire 

disposition of a passive activity that is 

equal to or greater than the net income on 

line 1d.

• The corporation is a closely held 

corporation with a loss or zero on Form 

8810, line 1d, and that amount is equal to 

or greater than the net active income on 

Form 8810, line 2.

• The corporation is a closely held 

corporation with net income on Form 

8810, line 3, and the corporation has an 

overall loss from an entire disposition that 

is equal to or greater than the net income 

on line 3.

Computation for Line 7

Part I. Tax Attributable to Net 

Passive Income

A. Income tax before credits from Form 

1120, Schedule J, line 2* .....

B. Taxable income from Form 

1120 ................

C. Net passive income. See instructions 

for line C .............

D. Subtract line C from line B. If zero or 

less, enter -0- here and on 

line E ................

E. Tax attributable to line D. Figure the 

tax on the line D amount as if it were 

the corporation's only taxable 

income ...............

F. Tax attributable to net passive 

income. Subtract line E from line A. 

Closely held corporations that do not 

have net active income and personal 

service corporations enter the 

amount here and on Form 8810, 

line 7 ................

Part II. Tax Attributable to Net 

Active Income

G. Enter amount from line E if Part I is 

completed. Otherwise, enter income 

tax before credits from Form 1120, 

Schedule J, line 2* ........

H. Taxable income from Form 

1120 ................

I. Net active income .........

J. Net passive income or loss. See 

instructions for line J .......

K. Combine lines I and J. If less than 

zero, enter as a negative 

amount ...............

L. Subtract line K from line H. If zero or 

less, enter -0- here and on 

line M ...............

M. Tax attributable to line L. Figure the 

tax on the line L amount as if it were 

the corporation's only taxable 

income ...............

N. Subtract line M from line G. If zero or 

less, enter -0- here and on 

line P ................

Worksheet 5—For Form 8810, Lines 5a and 5b Keep for Your Records

Name of Activity From Form (a) Current Year 

Credits (Line 5a)

(b) Prior Year 

Unallowed Credits 

(Line 5b)

(c) Total Credits

 (Add Columns (a)

 and (b))

Totals. Enter on Form 8810, lines 5a and 5b ................... ▶

-12- Instructions for Form 8810 (2023)
O. Enter the corporation's nonpassive 

credits without regard to the tax 

liability limitations .........

P. Tax attributable to net active income. 

Subtract line O from line N ....

Q. Tax attributable to net passive 

income and net active income. 

Add lines F and P. Enter the result 

here and on Form 8810, line 7 . .

* Subtract any decrease in taxes due 

(negative amount) from Form 8978 

included on Form 1120, Schedule J, line 6, 

from the amount entered on lines A and G.

Computation for Line 7, Part I. This part 

is used by personal service corporations 

and closely held corporations with net 

passive income.

Computation for Line 7, Part II. This 

part is used by closely held corporations 

that have net active income. See the 

instructions for line 2, earlier, for the 

definition of net active income. If the 

corporation has both net passive income 

and net active income, complete Part I and 

Part II and enter the amount from line Q on 

Form 8810, line 7.

Note. When using taxable income in the 

computation for line 7, it is not necessary 

to refigure items based on taxable income, 

such as the contributions deduction, the 

dividends-received deduction, and the net 

operating loss deduction. 

See the instructions for the tax return 

filed for information on how to figure tax.

Line C. Enter the net income, if any, from 

Form 8810, line 1d. If the corporation has 

an overall loss from the entire disposition 

of a passive activity, the amount to enter 

on line C is the net income from line 1d 

reduced by the overall loss, but not below 

zero. If the result is zero, skip the rest of 

the Part I computation.

Line J. If the corporation has net passive 

income, enter the amount from line C on 

this line. If the corporation has a net loss 

from Form 8810, line 1d, enter that amount 

on line J as a negative amount.

Line 9

If the corporation has one type of credit, 

the amount on line 9 is the credit allowed 

for the year. See Reporting Allowed 

Credits on Tax Return, later.

If the corporation has more than one 

type of credit or has credits from more 

than one activity, use Worksheet 6 to 

figure how much of the credit on line 9 is 

allowed for each activity. Keep a record of 

the unallowed credit and the activity to 

which it belongs to figure the credit 

allowed next year.

Reporting Allowed Credits on 

Tax Return

Form 3800. Include on the applicable line 

(3, 24, or 33) of Form 3800 each passive 

activity general business credit allowed 

from Worksheet 6, column (d).

Cooperatives. A closely held cooperative 

that is allocating part or all of a general 

business credit to patrons will show any 

allocation of the credit allowed from 

Worksheet 6, column (d), on the 

applicable lines of the separate credit 

forms.

Credits From PTPs

A credit from a passive activity held 

through a PTP is allowed to the extent of 

the tax attributable to net passive income 

from that PTP. See Publicly Traded 

Partnerships (PTPs), earlier, for the 

definition of a PTP.

Do not enter credits from PTPs on 

Form 8810 or the worksheets. Instead, use 

the following steps to figure the allowed 

and unallowed credits from passive 

activities held through PTPs.

1. Figure the tax attributable to net 

passive income for each PTP with current 

year passive activity credits or prior year 

unallowed credits.

2. Use the smaller of the tax 

attributable to net income from passive 

activities of the PTP or the credit (including 

Worksheet 6—Allowed and Unallowed Credits Keep for Your Records

Use Worksheet 6 to allocate the allowed and unallowed credits for each activity.

Column (a). Enter the total credits from Worksheet 5, column (c).

Column (b). Divide each of the credits in column (a) by the total of all credits in column (a). The total of the ratios should equal 1.00.

Column (c). Multiply Form 8810, line 8, by the ratios in column (b) and enter the results in column (c). These are the unallowed credits for 2023. 

Keep a record of these amounts so the credits can be carried to the next year.

Column (d). Subtract column (c) from column (a). These are the allowed credits for 2023. The amounts in this column are generally reported on 

Form 3800. See Reporting Allowed Credits on Tax Return below.

Name of Activity Form To Be 

Reported On (a) Credits (b) Ratio (c) Unallowed Credits (d) Allowed Credits

Totals ....................................... ▶ 1.00

Instructions for Form 8810 (2023) -13-
prior year unallowed credits) from passive 

activities of the PTP as the amount 

allowed. Report the allowed credits on the 

forms normally used and keep a record of 

the unallowed credits to be carried to the 

next year.

Part III. Election To 

Increase Basis of Credit 

Property

Line 10

Check the box on this line if the 

corporation elects to increase the basis of 

credit property it used in a passive activity 

or former passive activity by the unallowed 

credit that reduced the property's basis.

The election is available for a fully 

taxable disposition of an entire interest in 

an activity for which a basis adjustment 

was made as a result of placing in service 

property for which a credit was taken. The 

corporation can elect to increase the basis 

of the credit property immediately before 

the disposition (by an amount no greater 

than the amount of the original basis 

reduction) to the extent that the credit has 

not previously been allowed because of 

the passive credit limitations. The amount 

of the unallowed credit that can then be 

applied against tax is reduced by the 

amount of the basis adjustment. Once the 

election is made, it is irrevocable.

No basis adjustment can be elected on 

a partial disposition of the corporation's 

interest in a passive activity or if the 

disposition is not fully taxable. The amount 

of any unallowed credit, however, may 

remain available to offset the tax 

attributable to net passive and net active 

income.

Paperwork Reduction Act Notice. We 

ask for the information on this form to carry 

out the Internal Revenue laws of the 

United States. You are required to give us 

the information. We need it to ensure that 

you are complying with these laws and to 

allow us to figure and collect the right 

amount of tax.

You are not required to provide the 

information requested on a form that is 

subject to the Paperwork Reduction Act 

unless the form displays a valid OMB 

control number. Books or records relating 

to a form or its instructions must be 

retained as long as their contents may 

become material in the administration of 

any Internal Revenue law. Generally, tax 

returns and return information are 

confidential, as required by section 6103.

The time needed to complete and file 

this form will vary depending on individual 

circumstances. The estimated burden for 

business taxpayers filing this form is 

approved under OMB control number 

1545-0123 and is included in the 

estimates shown in the instructions for 

their business income tax return.

If you have comments concerning the 

accuracy of these time estimates or 

suggestions for making this form simpler, 

we would be happy to hear from you. See 

the instructions for the tax return with 

which this form is filed.

-14- Instructions for Form 8810 (2023)