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$23,387, and $22,160. Each of the other five rental properties
reported a net loss such that the combined losses of the five
properties in each year exceeded the net income from the office.
OPINION
Respondent determined that the Beechers’ net income from
their rental of the office was nonpassive income under the
recharacterization rule of section 1.469-2(f)(6), Income Tax
Regs.,2 because the Beechers materially participated in the
business activity of the lessees; i.e., the corporations. Thus,
respondent determined, the net income from the office could not
be offset by any of the losses from the other rental properties.
Petitioners do not dispute respondent’s determination that the
recharacterization rule on its face treats the net income from
the office as nonpassive. Nor do they dispute respondent’s
determination that the recharacterization rule on its face, as
applied to them, precludes them from offsetting the net income of
2 The recharacterization rule of sec. 1.469-2(f)(6), Income
Tax Regs., provides:
(f)(6) Property rented to a nonpassive activity.
An amount of the taxpayer’s gross rental activity
income for the taxable year from an item of property
equal to the net rental activity income for the year
from that item of property is treated as not from a
passive activity if the property--
(i) Is rented for use in a trade or business
activity * * * in which the taxpayer materially
participates (within the meaning of sec. 1.469-5T)
for the taxable year; * * *
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Last modified: May 25, 2011