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reported rental receipts of $1,814 and expenses of $27,643,
resulting in a loss of $25,829. In 1992, they had $4,368 in rental
receipts and $28,353 in expenses, resulting in a loss of $23,985.
Petitioners used these losses to offset other income. In 1991 and
1992, petitioners reported taxable income of $3,925,065 and
$307,638, respectively. Respondent determined that the losses from
the Vermont condominium constitute passive activity losses within
the meaning of section 469(a) and accordingly disallowed most of
the losses in the years under consideration.
OPINION
Pursuant to section 469(a), a passive activity loss is
generally not allowed as a deduction for the year sustained.
Section 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 such year. Passive activities are those activities
which 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 was material participation. Sec. 469(c)(2), (4).
However, an exception exists for rental activity in which the
average rental is no more than 7 days. Sec. 1.469-1T(e)(3)(ii)(A),
Temporary Income Tax Regs, 53 Fed. Reg. 5702 (Feb. 25, 1988). In
the instant case, the parties agree that the average rental period
for petitioners' Vermont condominium was less than 7 days.
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