- 4 - activities as including rental activities. The notice of deficiency that the Commissioner sent the Lees disallowed their losses from Lee Brothers Investments and their other real estate ventures because the Commissioner concluded that they were all “rental real estate activities,” and so per se passive. The Commissioner also reduced the size of the depreciation expenses that the Lees had taken on two of their properties, because they had used a 10-year useful life rather than the 27.5-year life clearly required by law. The Lees had no good reason for having done this, and conceded the issue before trial. The trial focused on whether the brothers’ work on their rental real estate qualified them for an exception to the Code’s characterization of rental activities as passive. The exception that they aimed for is section 469(c)(7)(B), and it applies if: (i) more than one-half of the personal services performed in trades or businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates, and (ii) such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates. In the case of a joint return, the requirements of the preceding sentence are satisfied if and only if either spouse separately satisfies such requirements. * * * There are a few elements to this exception about which there is no dispute. First, for both years and in both cases, thisPage: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011