- 28 -
Thus, in order to utilize a tax credit allocated to a passive
activity, a taxpayer must have passive income in excess of passive
deductions. See sec. 1.469-3T(g), Examples (2) and (3), Temporary
Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988). Because
petitioners' net rental income has been recharacterized as
nonpassive for 1993 and 1994, petitioners have no passive income.
Without passive income, petitioners have no "regular tax liability
allocable to passive activities." Any rehabilitation credit would
be in excess of such regular tax liability. Accordingly, we hold
that respondent properly disallowed the rehabilitation credit for
the years in issue.
In reaching our conclusions herein, we have considered all
other arguments presented and, to the extent not discussed above,
find them to be irrelevant or without merit.
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