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do not doubt that petitioner worked hard during the year in
issue, but he simply failed to present convincing evidence about
the amount of his work in his real property activities. We hold
that petitioner was not a qualifying taxpayer in 2001 for
purposes of section 469(c)(7), and therefore his rental real
estate activity during 2001 is classified as passive activity.
Although petitioners are not entitled to deduct the full
amount of their passive rental real estate losses, section 469(i)
allows a taxpayer to claim up to $25,000 per year in passive
activity losses from rental real estate activities (the $25,000
exemption), subject to a phaseout once the taxpayer’s adjusted
gross income exceeds $100,000. To qualify for the $25,000
exemption, the taxpayer must have “actively participated” in the
rental real estate activity. The active participation
requirement can be satisfied without regular, continuous, and
substantial involvement in an activity. See Madler v.
Commissioner, T.C. Memo. 1998-112; S. Rept. 99-313, 737-738
(1986), 1986-3 C.B. (Vol. 3) 1, 737-738. The active
participation standard should be met as long as the taxpayer
participates in a significant and bona fide sense in making
management decisions or arranging for others to provide services
such as repairs. Madler v. Commissioner, supra. The $25,000
exemption is phased out by 50 percent of the amount by which the
adjusted gross income of the taxpayer for the taxable year
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