James R. & Anita Madler - Page 7

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            average period of customer use is 7 days or less.  Scheiner v.                              
            Commissioner, supra.                                                                        
                  Section 469(i)(1) and (2) provides:                                                   
                        (i)  $25,000 Offset for Rental Real Estate                                      
                  Activities.--                                                                         
                              (1) In general.--In the case of any                                       
                        natural person, subsection (a) shall not                                        
                        apply to that portion of the passive activity                                   
                        loss * * * which is attributable to all                                         
                        rental real estate activities with respect to                                   
                        which such individual actively participated                                     
                        in such taxable year * * *.                                                     
                              (2) Dollar limitation.--The aggregate                                     
                        amount to which paragraph (1) applies for any                                   
                        taxable year shall not exceed $25,000.                                          

            In effect, section 469(i) allows the taxpayer to offset from                                
            nonpassive income up to $25,000 of certain passive activity                                 
            losses.4   With respect to the limited applicability of the                                 
            $25,000 offset to losses attributable to "rental real estate                                
            activities", the legislative history of section 469 explains:                               
                        Since relief under this rule applies only to                                    
                  rental real estate activities, it does not apply to                                   
                  passive real estate activities that are not treated as                                
                  rental activities under the provision (e.g., an                                       
                  interest in the activity of operating a hotel). * * *                                 
                  [S. Rept. 99-313 (1986), 1986-3 C.B. (Vol. 3) 1, 737.]                                
            Congress, therefore, intended that taxpayers should be entitled                             
            to the $25,000 offset for losses attributable to "rental real                               

            4  The $25,000 offset allowable under sec. 469(i) is phased                                 
            out as adjusted gross income, modified by sec. 469(i)(3)(E),                                
            exceeds $100,000, with a full phase-out occurring when modified                             
            adjusted gross income equals $150,000.  Sec. 469(i)(3)(A).                                  




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