Identification

• The IRS defines two kinds of passive activity. One is when you have a business, but aren't actively involved in running it--for example, a partnership where you put up money but someone else handles the work. The other is if you run a rental business; the IRS considers rental income passive unless you're a real estate professional actively involved in real estate rentals.
  
  

Significance

• If you suffer business losses from a passive activity, the IRS states, or if you have losses from a previous year that you weren't able to claim on that year's taxes, you can deduct them from this year's income. To claim passive losses, you must file 8582. If you have multiple passive activities, add them together to determine your total profit or loss--don't treat each business separately.
  
  

Size

• If your passive business activities generated an overall profit, you can write off all your passive losses against them and reduce your income. If you end up with a net loss, however, there's a limit on how big a loss you can claim. Filling out 8582 will show you how much your losses are and the maximum the IRS will allow you to deduct. If you exceed the maximum, you may be able to claim the excess losses on a future year's taxes.
  
  

Types

• If your 8582 losses came from a sole proprietorship--a business activity you run yourself--you include the total allowable loss on Schedule C, the form for self-employed business people. Farming losses go on Schedule F; rental real estate income goes on Schedule E; and partnership losses go on K-1, according to the IRS.
  
  

Considerations

• Although the IRS considers rental activity as passive income, the instructions for 8582 list several exceptions--rentals that are not "rental activity" in the IRS's eyes. These include if the rental activity is incidental to another purpose, such as owning investment property; if the rental is a minor part of personal services you provide your customers; or you routinely allow customers to use the property during business hours on a non-exclusive basis. You don't need 8582 to claim losses for these activities.