- 7 -
of property used in an activity, the regulations generally
provide that (1) the gain is treated as gross income from such
activity; (2) if the activity is a passive activity of the
taxpayer for the year of the disposition, the gain is treated as
passive activity gross income; and (3) if the activity is not a
passive activity of the taxpayer for the year of the disposition,
the gain is treated as not from a passive activity. See sec.
1.469-2T(c)(2)(i), Temporary Income Tax Regs., 53 Fed. Reg. 5686,
5711-5712 (Feb. 25, 1988).
The Secretary promulgated a separate rule for substantially
appreciated property.3 Where property used in an activity is
substantially appreciated at the time of its disposition, any
gain from the disposition will be treated as not from a passive
activity unless the property was used in a passive activity for
either (1) 20 percent of the period during which the taxpayer
held the property or (2) the entire 24-month period ending on the
date of the disposition. See sec. 1.469-2(c)(2)(iii)(A), Income
Tax Regs.4 The Secretary added this rule to dissuade taxpayers
3 Substantially appreciated property is defined as property
with a fair market value which exceeds 120 percent of the
property’s adjusted basis. See sec. 1.469-2(c)(2)(iii)(C),
Income Tax Regs.
4 We note that sec. 1.469-2(c)(2)(iii), Income Tax Regs.,
was first introduced in temporary form in 1988 as sec. 1.469-
2T(c)(2)(iii), Temporary Income Tax Regs., 53 Fed. Reg. 5686,
5711-5712 (Feb. 25, 1988). In 1989, the Secretary amended
slightly the temporary regulation. See sec. 1.469-2T(c)(2)(iii),
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011