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section 1.469-4(a), Income Tax Regs.,2 respondent recharacterized
the rental income Mr. Sidell received in 1993 and 1994 from the
three properties leased to his wholly owned C corporation from
passive to nonpassive.
As a consequence of this recharacterization, petitioners were
neither able to reduce such rental income by the losses from other
rental properties nor able to utilize certain rehabilitation
credits.
Section 469 and the Self-Rented Property Rule
Pursuant to section 469(a), in general, a taxpayer is denied
both a passive activity loss and a passive activity credit for the
taxable year in which they arise. A passive activity loss is
defined as the amount by which the aggregate losses from all
passive activities exceeds the aggregate income from all passive
activities for such years. See sec. 469(d)(1). Likewise, a
passive activity credit is defined as the amount by which the sum
of all allowable credits from passive activities exceeds the
regular tax liability of the taxpayer allocable to all passive
activities. See sec. 469(d)(2).
Section 469 specifically excludes certain transactions and
2 Sec. 1.469-4(a), Income Tax Regs., provides, among
other things, that for grouping a taxpayer's trade or business
activities and rental activities for purposes of applying the
passive activity loss and credit limitations rules of sec. 469, a
taxpayer's activities include those conducted through C
corporations that are subject to sec. 469.
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Last modified: May 25, 2011