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bird, and it’s not going to lay any more eggs.” Accordingly,
payments were made only when either petitioner or Don Blewett
needed the money to make payments to creditors for leased
equipment.
Petitioners claimed a net loss of $50,033 from their
equipment leasing activity on Schedule C, Profit or Loss From
Business (Sole Proprietorship), of their 1996 Federal income tax
return.3 In the notice of deficiency, respondent disallowed the
entire loss on the ground that the leasing activity was subject
to the passive loss limitations of section 469.
Discussion
Section 469(a)(1) limits the deductibility of losses from
certain passive activities. Generally, a passive activity
includes the conduct of a trade or business in which the taxpayer
does not materially participate. Rental activity is generally
treated as a passive activity without regard to whether the
taxpayer materially participates.4 Sec. 469(c)(1), (2), (4).
Rental activity is defined as “any activity where payments are
principally for the use of tangible property.” Sec. 469(j)(8).
3The loss was attributable primarily to deductions of
$30,062 and $17,141 for depreciation and sec. 179 expenses,
respectively.
4A statutory exception that was added in 1993 provides that
certain real estate operators need not treat their interests in
rental real estate as passive activities. Sec. 469(c)(7). That
exception is inapplicable here, because the subject of this
controversy is personal property.
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