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which limit the current recognition of passive activity losses.
Petitioner argues that he is excepted from the passive activity
loss limitation rules because, he asserts, he is a real estate
professional under section 469(c)(7). Petitioner concedes that
respondent’s determination must be sustained if he is not a real
estate professional.
Individuals such as petitioner are generally precluded from
currently deducting losses from a “passive activity”, a term that
is defined to include any trade or business activity in which the
taxpayer does not materially participate and all rental
activities regardless of the taxpayer’s level of participation.
Sec. 469(a), (c)(1), (2), (4). These passive loss rules, enacted
as part of the Tax Reform Act of 1986, Pub. L. 99-514, sec. 501,
100 Stat. 2085, 2233, prevent affected taxpayers from using
deductions from a passive activity to shelter wages or other
active income. See generally Staff of Joint Comm. on Taxation,
General Explanation of the Tax Reform Act of 1986, at 209-215 (J.
Comm. Print 1987).
Although all rental activities are passive, Congress enacted
an exception for certain post-1993 rental activities. See sec.
469(c)(7). Under this provision, petitioner will be considered a
real estate professional, and the losses on his rental properties
will not be per se passive, to the extent that he proves that he
meets the following two requirements: (1) He performed more than
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