Paul M. and Wanda E. Harmon - Page 11

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               In addition, although she minimizes the amount of time she             
          spent working for Golden Gate University, teaching even an on-              
          line version of a course must take some time, and this time would           
          have to be factored into any analysis of petitioner’s performance           
          of personal services in 2001.                                               
          C.  Conclusion                                                              
               Because petitioner did not qualify as a real estate                    
          professional, we need not consider whether she materially                   
          participated in the rental activities.  See sec. 469(c)(7)(B).              
               Further, we note that section 469(i) provides an exception             
          to the general rule that passive activity losses are disallowed.            
          A taxpayer who “actively [participates]” in a rental real estate            
          activity can deduct a maximum loss of $25,000 per year related to           
          the activity.  Sec. 469(i)(1) and (2).  This exception is fully             
          phased out, however, when adjusted gross income (AGI) equals or             
          exceeds $150,000.  Sec. 469(i)(3)(A), (E).  Petitioners’ 2001 AGI           
          exceeded $150,000.  Accordingly, they cannot deduct any amount of           
          the passive activity loss in 2001.  But see sec. 469(b)                     
          (explaining that disallowed losses may be treated as a deduction            
          allocable to the activity in a succeeding taxable year).                    
               Respondent’s determination is sustained, and to reflect our            
          disposition of the disputed issue,                                          

                                                  Decision will be entered            
                                             for respondent.                          

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