- 5 -
Total Expenses
(Including
Year Rents received Depreciation) Net loss
1996 $94,050 $167,397 $73,347
1997 87,030 154,324 67,294
In the notice of deficiency, respondent determined, inter
alia, that petitioner’s rental real estate losses were passive
activity losses that were limited to $25,000 each year.
Petitioners timely filed a petition with the Court disputing
respondent’s determinations.
Discussion5
Generally, section 469 disallows a deduction for passive
activity losses incurred by individual taxpayers for the taxable
year. Sec. 469(a)(1). A passive activity loss is the excess of
the aggregate losses from all passive activities for the taxable
year over the aggregate income from all passive activities for
such year. Sec. 469(d)(1). In general, a passive activity is
any trade or business in which the taxpayer does not materially
participate. Sec. 469(c)(1). Rental activities are
presumptively passive, without regard to whether the taxpayer
materially participates in the activity. Sec. 469(c)(2), (4).
The presumptive rule that a rental activity is a passive
activity, however, does not apply to the rental real estate
5 We decide this case without regard to the burden of
proof. Accordingly, we need not decide whether the general rule
of sec. 7491(a) is applicable in this case. Higbee v.
Commissioner, 116 T.C. 438, 446 (2001).
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