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 theC-3screen.
- For Schedule E, page 1, use theRent-2screen.
- For Schedule E, page 2, part II, use theK1-7screen.
- For Schedule E, page 2, part III, use theK1T-3screen.
- For Schedule F, use theF-3screen.
- For Form 4835, use the4835-2screen.
- If the activity isn't part of an aggregation group or a significant participation activity, use theRecharacterization of passive incomedropdown list.noteActivities that are part of an aggregation group and have data inRecharacterization of passive incomeare 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.
- If the activity is a significant participation activity, enter theSignificant participation hours.importantDon't use bothRecharacterization of passive incomeandSignificant 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 forSignificant 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 hoursdoesn’t apply to activities with aPassive activity codeof2: 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.
