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Respondent determined deficiencies of $5,982 and $1,484 in
petitioners’ 1998 and 1999 Federal income taxes, respectively.
After a concession by petitioners as to the deficiency for
taxable year 1999, this Court must decide: (1) Whether
petitioner Alfredo A. Galagar (petitioner) was a real estate
professional under section 469(c)(7) during taxable year 1998,
and, if not, (2) whether petitioners’ claimed rental real estate
loss is subject to the phaseout provision for rental real estate
activities under section 469(i).
Some of the facts in this case have been stipulated and are
so found. Petitioners resided in Yorba Linda, California, at the
time they filed their petition. Because petitioners did not meet
the substantiation and recordkeeping requirements of section
7491(a)(2), the burden of proof remains on petitioners. Rule
142(a).
During taxable year 1998, petitioners owned and rented a
single family home in Chino, California (the rental property).
In connection with the rental property, petitioners attached
Schedule E, Supplemental Income and Loss, to their jointly filed
Form 1040, U.S. Individual Income Tax Return. On Schedule E,
petitioners reported rental income in the amount of $14,748, and
total expenses in the amount of $36,001, for a rental real estate
loss of $21,253. Petitioners claimed that loss on Line 17 of
their Form 1040. Respondent disallowed $20,721 of petitioners’
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