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Rental income $44,916
Expenses 62,101
Rental real estate loss 17,185
In the notice of deficiency, respondent, relying upon
section 469, determined that petitioner is not entitled to a
deduction for the rental real estate loss. Other adjustments
made in the notice of deficiency are not in dispute.
Discussion
The extent to which petitioner is entitled to a rental real
estate loss deduction is determined by reference to section 469.2
That section sets forth what are commonly referred to as the
passive activity loss rules. Although those rules are complex
and spawn many disputes between taxpayers and the Commissioner,
the disagreement between the parties in this case is relatively
simple--the parties disagree as to the number of hours that
2 In general, an individual is not entitled to a deduction
for a passive activity loss. See sec. 469(a). Except as
provided in sec. 469(c)(7), the term “passive activity” includes
any rental activity. An otherwise deductible loss attributable
to a rental real estate activity and sustained by an individual
who actively participates in that rental real estate activity is
deductible to a limited extent. See sec. 469(i). An otherwise
deductible loss attributable to a rental real estate activity and
incurred by a taxpayer who materially participates in a real
property business is not subject to the limitations imposed by
the passive activity rules because the activity is not considered
a passive activity, if the taxpayer: (1) Performed more than one-
half of his personal services during the year in real property
trades or businesses in which he materially participated and (2)
performed more than 750 hours of services during the taxable year
in real property trades or businesses in which the taxpayer
materially participates. See sec. 469(c).
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Last modified: May 25, 2011