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expenses claimed on the ARA Schedule C. See sec. 6001; sec.
1.6001-1(a), (e), Income Tax Regs. The Court sustains
respondent's disallowance of the ARA Schedule C deductions.
B. Schedule E Rental Real Estate Losses
Petitioners reported a rental real estate loss of $2,635
from the rental of their property in Georgia. They applied the
loss against petitioner's wages from Eli Lilly. Respondent
disallowed the loss.
Section 469 generally prevents a taxpayer from deducting
passive activity losses from income unrelated to a passive
activity, requiring that passive losses be used only to offset
passive income. Sec. 469; Schwalbach v. Commissioner, 111 T.C.
215, 223 (1998). A taxpayer's right to make use of passive
activity losses in any year is limited to the amount of the
taxpayer's passive activity income for that year. Sec. 469(a),
(d)(1). Amounts disallowed may be carried forward to subsequent
years. Sec. 469(b). Subject to exceptions not relevant here, a
passive activity loss includes all losses from passive
activities, and a rental activity is defined by section 469(c)(2)
to be a "passive activity".
Although petitioners are not entitled to offset the rental
real estate loss against petitioner's wages, section 469(i)
allows a taxpayer to claim up to $25,000 per year in passive
activity losses from rental real estate activities in which the
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