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Recharacterize passive income

Refer to Publication 925 to determine whether you can recharacterize the treatment of income as non-passive.
You'll need to enter passive information on the correct screen:
  • For Schedule C, use the
    C-3
     screen.
  • For Schedule E, page 1, use the
    Rent-2
     screen.
  • For Schedule E, page 2, part II, use the
    K1-7
     screen.
  • For Schedule E, page 2, part III, use the
    K1T-3
     screen.
  • For Schedule F, use the
    F-3
     screen.
  • For Form 4835, use the
    4835-2
     screen.
  1. If the activity isn't part of an aggregation group or a significant participation activity, use the
    Recharacterization of passive income
     dropdown list.
    note
    Activities that are part of an aggregation group and have data in
    Recharacterization of passive income
     are removed from the aggregation group disclosure statement. This is because the income is no longer treated the same as the other activities in the group.
  2. If the activity is a significant participation activity, enter the
    Significant participation hours
    .
    important
    Don't use both
    Recharacterization of passive income
     and
    Significant participation hours
    .
    note
    • Significant participation hours less than 100 for an activity: UltraTax CS will consider the activity passive. It isn't considered a significant participation activity.
    • Total significant participation activity hours on the return are greater than 100 but less than 500: UltraTax CS will treat the overall losses from the significant participation hours as passive. Overall income from these activities is recharacterized as non-passive. UltraTax CS will generate a statement for Form 8582, Significant Participation Activity Worksheets.
    • Total significant participation activity hours on the activity are over 500: UltraTax CS won't perform the calculation for
      Significant participation hours
      . UltraTax CS doesn't determine the passive or non-passive character of the entity or business. You'll need to code the activities' character.
    • Significant participation hours
       doesn’t apply to activities with a
      Passive activity code
       of
      2: Rental real estate w/active participation
      . According to the Form 8582 instructions, rental activities with active participation don't follow the same material participation rules as other passive activities.

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