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Petitioner argues that the airplane was an essential part of
his real estate operations and that the costs he incurred should
be allowable as trade or business expenses under section 162.
Petitioner asserts that he used the airplane for the
“professional chase of properties”, such as the purchase of real
estate, research to develop his properties, and attendance at
business meetings.
A rental activity is a per se passive activity regardless of
whether the taxpayer materially participates in the activity.
Sec. 469(c)(2), (4). Rental activity, as defined in section
469(j)(8), is “any activity where payments are principally for
the use of tangible property.” Here, the rental of petitioner’s
airplane to Shaw’s Gulf for monthly lease payments of $7,000 was
a rental activity under section 469(j)(8) and, thus, a passive
activity under section 469(c)(2).
Petitioner argues that, while, in form, the agreement is a
lease, the substance of the transaction resembles an
expense-sharing agreement with Shaw’s Gulf, Shaw Ltd., and C&A
Trucking. We disagree. The lease agreement did not provide for
expense-sharing. Rather, the lease provided that the lessee
would maintain and repair the airplane and insure the airplane
against loss. Shaw’s Gulf, as lessee, deducted the repairs and
maintenance expenses related to the airplane.
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