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Shaw’s Gulf deducted the rental expense and all the repairs and
maintenance expense relating to the airplane. Petitioner
included the rental income and deducted the mortgage interest and
depreciation expense related to the airplane.
Tax Reporting
Petitioner’s individual tax return and the tax returns of
petitioner’s business entities were prepared by petitioner’s
accountant, who was a certified public accountant, tax
practitioner, and had a real estate background. Petitioner met
with his accountant regularly and discussed his business
activities.
On petitioner’s Schedule E, Supplemental Income and Loss, he
reported income and losses from his ownership interests as
nonpassive:
Entity 1995 1996
RS&M $29,814 $29,814
R&S 27,869 25,236
SDQ LLC 21,981 19,247
Shaw, Ltd. (139,623) (108,691)
Net nonpassive income/(loss) $(59,959) $(34,394)
Based on petitioner’s assumption that he qualified as a real
estate professional under section 469(c)(7), petitioner reported
his net income and loss from his rental property on Schedule E as
nonpassive:
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