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from the rental of another property listed as Jefferson Manor
Apartments. They reported carryover passive losses of $23,106
and $45,830 for 1993 and 1994, respectively.
Petitioners used $10,490 and $15,906 of the passive losses
to offset the Rochester Street building rent and reduced the
amounts of rent to the amounts of $13 and $31 for 1993 and 1994,
respectively. Petitioners further reduced the amounts of rent to
$0 for both years after deduction of passive losses from a
partnership listed as Dodge Corners Inv. Cl. in the amounts of
$13 and $31 for 1993 and 1994, respectively. Thus, petitioners
used total passive losses of $10,503 ($10,490 + $13) and $15,937
($15,906 + $31) to offset the rental incomes from the Rochester
Street building for 1993 and 1994, respectively.
Respondent determined that the rental profits from the
Rochester Street building are nonpassive income and therefore
were not allowable to offset petitioners' passive losses. As
respondent stated in the notice of deficiency:
On Schedule E of your 1993 AND [sic] 1994 returns, you
reported net profits from your rental properties in the
amounts of $10,503 in 1993 and $15,937 in 1994. You treated
these profits as passive income which you than [sic] used to
offset passive losses. It has been determined that these
rental net profits are nonpassive income and therefore
unallowable to offset your passive losses. Therefore, your
taxable incomes for 1993 and 1994 are increased by $10,503
and $15,937, respectively.
Respondent also adjusted petitioners' itemized deductions for
both years, child care credit for 1993, and the exemptions
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