Knowledge Base

11138: 4797 - Passive Activity Adjustment

1040 Individual Generally

I have a figure on line 2 of my 4797 with the description “Passive Activity Adj.” Where does that amount come from?

A NOTES page in view explains the reason for the adjustment:

If the total allowed passive activity loss differs from the total current-year passive loss (as calculated by the referenced worksheets), the adjustment is generated. The adjustment makes the total passive loss on line 2 equal to the total allowed passive loss calculated on the referenced worksheets.

The difference that generates the note may result from a variety of sources. Common sources include

  • the field Prior unallowed passive 4797 Pt 1…
    • on screen E,
    • or on a screen K1P, K1F, or K1S marked with an Activity Type of A - Active rental real estate - flows to 8582, line 1
  • the field Net 1231 gain or loss on a screen K1P or K1S
  • a calculated passive loss limitation

Review Wks 85826 (worksheet 6), and Wks 85827 (worksheet 7, if necessary). In Drake15 and prior, the worksheets are labeled: WK_85826 and WK_85827. For more information, see "Part I" in the Instructions for Form 8582.


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