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the rental of property. That is, the entire undertaking is
treated as rental or nonrental depending on the predominant
character of the income.
If a rental operation is classified as a separate
undertaking, it may be combined, under certain circumstances,
only with another rental undertaking into a single activity.
Sec. 1.469-4T(k), Temporary Income Tax Regs., 54 Fed. Reg. 20561.
There is no possibility under the regulations for a rental
undertaking to be combined with a nonrental undertaking into one
activity. Thus, if rental and nonrental operations cannot be
combined into one undertaking under the regulations, they cannot
be combined at all.
Discussion
Combination of Operations into One Undertaking
Petitioner incurred losses with respect to the Rental
Operation. Rental real estate losses would normally be passive.
Sec. 469(c)(2). Petitioner seeks to deduct those losses as non-
passive losses. This may only be accomplished if the Rental
Operation is combined with petitioner's share of the nonpassive
Project into one undertaking. Neither party contends that
petitioner's Rental Operation is not a rental real estate
operation. Also, both parties agree that Associates' Project is
a nonpassive, nonrental operation. It is the possible
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