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gross income of negative $68,757. Petitioner also claimed
dependency exemption deductions for two daughters and itemized
deductions of $25,288 for mortgage interest and real estate
taxes, resulting in a taxable income of negative $102,145, and
zero tax liability.
1. Petitioner’s Rental Activities
During 1998, petitioner owned or held partial ownership
interests in seven separate rental properties. Petitioner is not
a real estate professional, and he did not personally manage any
of the rental properties. Three of the properties are in the San
Diego area and during 1998 were professionally managed by Westman
Property Management. The other four properties are located in
the Washington, D.C., area and during 1998 were professionally
managed by Yarmouth Property Management. On his Federal income
tax return, petitioner reported the following income and expenses
with respect to the rental properties, reporting an overall
deductible loss of $62,297:
California Properties Washington, D.C., Area Properties
San San Spring Arlington Wash. Wash. Wash.
Diego Diego Valley Virginia D.C. D.C. D.C.
Rents received $9,950 $11,160 $104,488 $13,620 $36,016 $26,365 $48,962
Less cash expenses 9,871 8,490 88,781 17,832 38,530 37,786 56,630
Less depreciation 467 1,167 19,089 7,999 8,145 8,399 9,672
Gain (loss) ($388) $1,503 ($3,382) ($12,211) ($10,659) ($19,820) ($17,340)
Petitioner did not directly receive the rents from these
properties. Instead, the rental management companies collected
the rents, paid the related expenses, and then billed petitioner
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