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aggregate losses from all passive activities" exceeds "the
aggregate income from all passive activities" for the taxable
year. Sec. 469(d)(1). Except for taxpayers entitled to
treatment under section 469(c)(7), "Special rules for taxpayers
in real property business", the term "passive activity" includes
any rental activity. Sec. 469(c)(2). Rental activity is any
activity "where payments are principally for the use of tangible
property." Sec. 469(j)(8). Petitioners do not claim that the
special rules of section 469(c)(7) apply to their return for
2000.
Section 469(i), with respect to rental real estate
activities in which an individual actively participates, provides
that the section 469(a) disallowance will not apply to a maximum
of $25,000 of passive activity losses. An annual maximum of one
$25,000 offset is allowed for all of a taxpayer's rental
activities. Sec. 469(i)(2), (5). This nonapplication or
"exemption" begins to phase out where the taxpayer's adjusted
gross income (AGI) exceeds certain levels. Sec. 469(i)(3). The
phaseout in petitioners' case is 50 percent of the amount by
which their AGI (computed without regard to passive activity
losses) exceeds $100,000. See sec. 469(i)(3)(A), (E)(iv).
Computed as required, petitioners' adjusted gross income is
$152,700, and the exemption is completely phased out.
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Last modified: May 25, 2011