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respect to providing necessary services, and which
serves significant nontax purposes of the taxpayer, is
different in some respects from the activities that are
meant to be fully subject to limitation under the
passive loss provision.22
22For example, in the case of a rental real estate
investor whose cash expenses with respect to the
investment (e.g., mortgage payments, condominium or
management fees, and costs of upkeep) exceed cash
inflows (i.e., rent), tax losses other than those
relating to depreciation may not be providing any cash
flow benefit.
S. Rept. 99-313, supra, 1986-3 C.B. at 736.
Accordingly, section 469(i) was enacted to provide relief to
moderate income taxpayers who invest in rental real estate as a
means of financial security, which purpose serves significant
nontax purposes of the taxpayer. In light of the congressional
intent, it is appropriate that the statute provides a
classification relating to rental real estate investment. We
therefore think that a rational basis exists for the enactment of
section 469(i) and the classification provided therein.
Further, given that Congress has broad latitude in creating
classifications and distinctions in tax statutes, we cannot hold
that a rational basis does not exist for a classification of the
type provided in section 469(i). Cf. Kozlowski v. Commissioner,
T.C. Memo. 1979-176. By enacting section 469(i) Congress chose
to allow deductions in excess of gross income; i.e., a loss to
the extent of $25,000, related to rental real estate activities.
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