- 5 - The sublease agreements between Hairston and the end users typically had terms of 7.93 days in 1995 and 11.63 days in 1996. All of petitioners’ equipment was leased to end users in the name of and under lease agreements with Hairston, not with petitioners. On their 1995 and 1996 joint Federal income tax returns, with regard to the lease of their equipment, petitioners claimed Schedule C ordinary deductions under section 162, reported rental income from Hairston, and claimed net losses after depreciation as follows: Sec. 162 Year Expenses Rental Income Net Losses 1995 $1,371 1 $15,000 $58,899 1996 350 37,500 38,499 1 On audit for 1995, respondent charged petitioners with an additional $22,800 in unreported income from the lease of their equipment, to which additional income petitioners agree. OPINION Section 469(a)(1) limits the deductibility of losses from certain passive activities of individual taxpayers. Generally, a passive activity includes the conduct of a trade or business in which the taxpayer does not materially participate. In addition, rental activity (except certain rental activity involving real estate) is generally treated as a passive activity without regard to whether the taxpayer materially participates. See sec. 469(c)(1), (2), (4), (7).Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011