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Bear Valley Road property of $102,646 in 1999 and $102,045 for
2000.
The restaurant agreed to pay rent of $60,000 per year to
petitioners for the John Glenn Road property. The restaurant
failed to pay its designated rent in 1999 and 2000, which, after
mortgage interest, taxes, depreciation, and amortization incurred
by petitioners, resulted in a net loss to petitioners for the
John Glenn Road property of $41,706 in 1999 and $40,169 in 2000.
Petitioners grouped the rental properties together to
constitute a single “activity”. On Schedules E, Supplemental
Income and Loss, of their 1999 and 2000 income tax returns,
petitioners netted the income from the Bear Valley Road property
and the loss from the John Glenn Road property. For 1999,
petitioners subtracted the $41,706 net loss on the John Glenn
road property from the $102,646 net income on the Bear Valley
Road property, resulting in net rental income of $60,940.
Similarly, for 2000, petitioners subtracted the $40,169 net loss
on the John Glenn Road property from the $102,045 net income on
the Bear Valley Road property, resulting in net rental income of
$61,876. Petitioners reported the net rental income as not from
a passive activity and reported no passive activity loss.
Respondent disallowed petitioners’ net losses on the John
Glenn Road property under section 469(a) as passive activity
losses.
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Last modified: May 25, 2011