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of Sacramento Sierra Medical Group; petitioner Carolyn Novick was
a housewife.
Schedule E Rental Losses
During each of the years under consideration, petitioners
reported income and expenses attributable to three rental
activities on Schedule E of their tax returns: The Texas rental,
the Tahoe rental, and the F Street (Sacramento) Duplex rental.
Respondent disallowed numerous expenses claimed by petitioners with
respect to each of these rental properties and recalculated
petitioners' net Schedule E gain/loss after applying the passive
activity loss rules.2 Petitioners do not dispute the application
of the passive activity loss rules to the rental expenses claimed
on Schedule E of their tax returns. The following tables show the
income/loss reported by petitioners and the amounts allowed by
respondent with respect to each of the three rental properties,
before application of the passive activity loss rules (hereafter
referred to as Pre-Pals):
2 Pursuant to sec. 469(a), a passive activity loss is
generally not allowed as a deduction for the year sustained.
Sec. 469(d)(1) defines a passive activity loss as the amount by
which (A) the aggregate losses from all passive activities for
the taxable year exceed (B) the aggregate income from all passive
activities for that year. Passive activities are those
activities that involve the conduct of a trade or business in
which the taxpayer does not materially participate. Sec.
469(c)(1). Rental activity ordinarily is treated as a passive
activity irrespective of whether there is material participation.
Sec. 469(c)(2), (4).
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