Sharon M. Rivera and Richard C. Rivera - Page 11

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          entitled to deduct expenses under section 212(2).2  See Mitchell            
          v. Commissioner, 47 T.C. 120, 128 (1966); Thomason v.                       
          Commissioner, T.C. Memo. 1997-480; sec. 1.212-1(b), Income Tax              
          Regs.                                                                       
               The Court concludes from the record that petitioners'                  
          activities with respect to the property for 2000 were of two                
          separate types, a rental activity and an investment activity.               
          "If the taxpayer engages in two or more separate activities,                
          deductions and income from each separate activity are not                   
          aggregated either in determining whether a particular activity is           
          engaged in for profit or in applying section 183."  Sec. 1.183-             
          1(d)(1), Income Tax Regs.                                                   
               Because petitioners' property was used for more than one               
          activity, one of which was not for profit, petitioners must                 
          allocate deductions relating to the property on a reasonable                
          basis.  Sec. 1.183-1(d)(2), Income Tax Regs.  Because                       
          petitioners' mortgage interest and real estate taxes are                    
          specifically allowable as deductions under sections 163 and                 
          164(a) without regard to the use of the property for profit, no             
          allocation between the activities is necessary.  Sec. 1.183-                
          1(d)(3), Income Tax Regs.                                                   

               2                                                                      
               The deductions would appear to give petitioners a passive              
          activity loss.  See sec. 469(c)(1), (6)(B).  Petitioners,                   
          however, are treated as "materially participating" in the                   
          investment activity under test two of sec. 1.469-5T(a),                     
          Temporary Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988).              




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