Instructions for Form 8810

2025

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

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

Jul 24, 2025

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% 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

Instructions for Form 8810 (2025) Catalog Number 10357E

Department of the Treasury Internal Revenue Service www.irs.gov

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).

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

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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 Revenue Procedure

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.

lease, a service contract, or some other

arrangement.

Note. If an activity qualifies for the

exception described above in 2025, 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.

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

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,

earlier. In addition, if the corporation meets

any of the five exceptions listed later, 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

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.

Instructions for Form 8810 (2025)

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.

Instructions for Form 8810 (2025)

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 later,

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

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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 proven 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

4

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

Instructions for Form 8810 (2025)

• 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

Instructions for Form 8810 (2025)

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 Revenue Procedure.

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.

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.

6

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

Instructions for Form 8810 (2025)

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.

Worksheet 1—Computation of Income,

Gains, Deductions, and Losses for

Worksheet 2

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 . . . . . . . . .

. . . . . . .

Compensation of officers

c.

Salaries and wages

Unrecognized gain as of the beginning

of the current year

d.

Repairs and

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

e.

Bad debts

f.

Rents . . . . . . . . . . . . . . . . .

g.

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

h.

Interest . . . . . . . . . . . . . . . .

i.

Depreciation . . . . . . . . . . . . .

j.

Depletion . . . . . . . . . . . . . . .

k.

Advertising . . . . . . . . . . . . . .

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,

Instructions for Form 8810 (2025)

▶

. . . . . . . . . . . .

b.

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.

Name of Activity:

. . . . . . . . . .

Gain recognized in 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.

Keep for Your Records

. . . . .

. . . . . . . .

. . . . . . . . . . . . . .

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) . . . . . . . . . . . . . .

▶

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), Capital Gains and Losses, and

Form 8949, Sales and Other Dispositions

7

of Capital Assets, as applicable, and Form

4797, Sales of Business Property.

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 2024

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. 2025 Passive

Activity Loss

Lines 1d and 3

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

the deductions and losses are allowed,

8

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 2025.

Instructions for Form 8810 (2025)

Keep for Your Records

Worksheet 2 for Form 8810, Lines 1a, 1b, and 1c

Current Year

Name of Activity

Totals. Enter on Form 8810, lines

1a, 1b, and 1c . . . . . . . . . . . . . .

(a) Income

(Line 1a)

(b) Deductions and

Losses (Line 1b)

Prior Year

Overall Gain or Loss

(c) Unallowed

Losses (Line 1c)

(d) Gain

(e) Loss

▶

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 2024. If there were prior year unallowed losses from 2024, 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 2024, 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).

(a) Loss From

Worksheet 2, Column (e)

Name of Activity

Totals . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Instructions for Form 8810 (2025)

(b) Ratio

(c) Unallowed Deductions

and Losses

1.00

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.

9

Keep for Your Records

Worksheet 4—Allowed Deductions and Losses

Name of Activity:

1.

(a) Deductions and

Losses

(b) Ratio

(c) Unallowed

Deductions and

Losses

(d) Allowed

Deductions and

Losses

(c) Unallowed

Deductions and

Losses

(d) Allowed

Deductions and

Losses

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 . . . . . . . . .

2.

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

3.

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

▶

Name of Activity:

1.

1.00

(a) Deductions and

Losses

(b) Ratio

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 . . . . . . . . .

2.

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

3.

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

10

▶

1.00

Instructions for Form 8810 (2025)

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.

Gross receipts

Deductions

Form 1120

Net loss

Gain

Loss

$100,000

120,000

($20,000)

Form 8949

Form 4797

$1,000 Gain

$5,000

(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

x

$21,000

Form

8949:

$1,000

x $18,000 = $857

$21,000

$18,000 = $17,143

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 2024 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

Instructions for Form 8810 (2025)

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

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. 2025 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

Section 469(k) provides that the passive

activity rules and limitations must be

applied separately to items from each PTP.

Complete Worksheet 5 before completing

Part II. Use Worksheet 5 to figure the

amounts to enter on Form 8810, lines 5a

and 5b.

Losses from passive activities the

corporation holds through a PTP can

generally be used only to offset income or

Column (a). Convert any current year

qualified expenditures into credits and

complete Form 3800, General Business

11

Worksheet 5—For Form 8810, Lines 5a and 5b

Name of Activity

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

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

12

(a) Current Year

Credits (Line 5a)

From Form

Keep for Your Records

(b) Prior Year

Unallowed Credits

(Line 5b)

(c) Total Credits

(Add Columns (a)

and (b))

▶

Worksheet 6, column (c), located in the

2024 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 . . . . . . . . . . . . . . . .

Instructions for Form 8810 (2025)

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 2025.

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 2025. The amounts in this column are generally reported on

Form 3800. See Reporting Allowed Credits on Tax Return, later.

Name of Activity

Form To Be

Reported On

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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, Partner’s Additional Reporting Year Tax,

included on Form 1120, Schedule J, line 5f, 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.

Instructions for Form 8810 (2025)

(a) Credits

▶

(b) Ratio

(c) Unallowed

Credits

(d) Allowed Credits

1.00

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 next.

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

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

14

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.

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.

You are not required to provide the

information requested on a form that is

Instructions for Form 8810 (2025)