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Lake Arrowhead Property
Respondent maintains that petitioners are not entitled to
deduct losses generated from their Lake Arrowhead property in
1996 and 1997, because the Lake Arrowhead property is real estate
held in a trade or business subject to section 469(c)(1), rather
than a rental activity under section 469(c)(2), and petitioners
have not established that they materially participated in the
trade or business of renting their Lake Arrowhead property as
required by section 469(c)(1)(B).
Petitioners argue that they properly filed an election
pursuant to section 469(c)(7)(A)(ii) to treat all of their
interests in rental real estate as a single rental real estate
activity and that their activities related to the rental of their
Lake Arrowhead property should be considered in aggregate with
their other rental properties. As previously explained,
petitioners’ argument fails because the election to treat all
rental properties as one activity is limited to the purpose of
determining whether a taxpayer is a real estate professional
under section 469(c)(7). Here, the average period of use of the
Lake Arrowhead property was less than 7 days in 1996 and 1997;
thus, the rental of the Lake Arrowhead property is not a rental
activity as defined in section 469(j)(8) and is not a passive
activity under section 469(c)(2). See Scheiner v. Commissioner,
supra; Mordkin v. Commissioner, supra. Nevertheless,
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