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Section 469(i) provides an exception, however, to this rule
of complete disallowance. Section 469(i) allows a taxpayer who
is a natural person and who "actively participates" in a rental
activity to claim a maximum loss of $25,000 per year related to
the rental real estate.5
Petitioner does not dispute that his automobile rental
activity constituted a rental activity as defined in section
469(c)(2). Rather, petitioner claims that he should be entitled
to the $25,000 passive activity loss offset available for rental
real estate activity under section 469(i). He contends that
disallowance of the losses from his automobile rental activity as
passive losses is unconstitutional because such disallowance
violates the Equal Protection Clause of the Fifth Amendment of
the Constitution. Petitioner focuses on the classification
provided in section 469(i), which provides for a $25,000 offset
only for rental real estate activities.
Generally, statutory classifications are valid if they bear
a rational relation to a legitimate governmental purpose. See
Regan v. Taxation With Representation, 461 U.S. 540, 547 (1983).
A higher level of scrutiny is applied if a statute interferes
with the exercise of a fundamental right, such as freedom of
5 The exemption provided in sec. 469(i) is phased out for
taxpayers whose adjusted gross income is greater than $100,000.
See sec. 469(i)(3)(A).
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Last modified: May 25, 2011