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real estate activities. Section 469(i)(1) provides, in relevant
part, that “in the case of any natural person,” the passive
activity loss disallowance under section 469(a) “shall not apply
to that portion of the passive activity loss * * * attributable
to all rental real estate activities with respect to which such
individual actively participated in such taxable year”. Active
participation includes making management decisions or arranging
for others to provide services such as repairs. Cf. Madler v.
Commissioner, T.C. Memo. 1998-112.
Section 469(i)(2) imposes a $25,000 limitation on section
469(i)(1). But section 469(i)(3)(A) provides that “the $25,000
amount under paragraph (2) shall be reduced (but not below zero)
by 50 percent of the amount by which the adjusted gross income of
the taxpayer for the taxable year exceeds $100,000.” Section
469(i)(3)(E)(iv) provides that “adjusted gross income shall be
determined without regard to * * * any passive activity loss”.
Assuming arguendo that petitioner actively participated in
his rental real estate activities during taxable year 1998,
petitioner could claim the $25,000 offset allowed under section
469(i)(1), subject to a phaseout. We find that the phaseout
under section 469(i)(3)(A) applies here. On their 1998 Form
1040, petitioners reported wage income of $148,514, taxable
interest of $402, and ordinary dividends of $21. For purposes of
section 469(i)(3)(A) and (E), petitioners’ adjusted gross income
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