IRS Form 8582 is completed by noncorporate taxpayers to report their passive activity income and losses. Passive activity losses can generally only be offset against other passive activity income.

For taxpayers with both passive and nonpassive income, they must carefully categorize each activity to ensure they are not using passive activity losses to offset nonpassive income. Form 8582 is completed before moving to Schedule E Part 2.

In this example, we have a taxpayer with three Schedule K-1s from passive activities, and one Schedule K-1 from a business where he materially participates in the operations.

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