Attorney-at-Law

Slim Pickings, But A Good Review

In Uncategorized on 03/03/2011 at 16:20

I reiterate my aversion to posting 7463 “don’t quote me” decisions, which have no precedential value. But, given the paucity of exciting Tax Court quotables (if  “exciting Tax Court quotables” isn’t an oxymoron), I fall back on the gleanings.

In this case, Chief Special Trial Judge Panuthos gives a review of the rules  regarding active-passive-real estate professionals losses. The case is Todd D. Bailey, Jr. and Pamela J. Bailey, T.C. Summary Opinion 2011-22, filed March 2, 2011.

Todd was a doctor with an AGI to match his prominence. Pamela ran their  rental real estate operations. I won’t paraphrase Judge Panuthos’ exhaustive review of Pamela’s working life, or the extensive review of the statute and regulations, which I recommend to all tax professionals as non-credit CPE. The takeaway is that rentals averaging less than one week throw off business income that should be reported on Schedule C, along with the relevant deductions. This income is not passive, and taxpayer’s involvement therein doesn’t count toward the magic 750 annual hours to permit deduction of rental losses.

Thus hard-working Pamela defers her losses in accordance with the passive activity rules and loses her current years’ deductions.  And the $25,000 active participation loss is phased out because of the couple’s heavy duty AGI north of $150,000.

Nothing like hard work and success for ruining one’s tax posture.

 

 

 

 

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