- 4 -
Year Loss
1988 $18,232
1989 12,231
In 1987, Associates sold two units of the Project, Pilot
House 206 (unit 206) and Pilot House 405 (unit 405), to
petitioner. During 1988 and 1989, petitioner rented out these
units. He owned and rented out other units that are not the
subject of this dispute. We shall refer to petitioner's rental
of units 206 and 405 as the Rental Operation. Petitioner's gross
income with respect to the Rental Operation was as follows:
Unit 1988 1989
206 $5,166 -0-
405 7,200 -0-
Petitioner incurred losses with respect to the Rental Operation
as follows:
Unit 1988 1989
206 $22,947 $26,703
405 23,115 30,966
In 1989, petitioner sold unit 405.
Statutory and Regulatory Framework
The issue before us is whether petitioner's Rental Operation
should be classified as a nonpassive activity for purposes of
section 469. That section was designed to limit deductions of
losses from passive activities. S. Rept. 99-313 (1986), 1986-3
C.B. (Vol. 3) 713, 716-718. To this end, taxpayers generally may
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