Roger M. Fredenberg and Kimberly D. Fredenberg, T. C. Sum. Op. 2025-1, filed 1/16/25, is just another rental real estate and unreimbursed employee expenses indocumentado. But CSTJ Lewis (“I’ve Heard That Name Before”) Carluzzo examines IRS’ claim that the rental gig is a Section 183 hobby loss.

“During each year in issue, both apartments were rented to a carpenter/roofer tenant unrelated to petitioners. The tenant performed various repairs and renovations in return for reduced rent, and each year the reduced rent was less than the deductions claimed, resulting in substantial losses for both years.

“According to respondent, petitioners’ arrangement with the tenant allows for deductions only as permitted by section 183 because petitioners did not rent out the property with the intent to make a profit.” T. C. Sum. Op. 2025-1, at p. 3.

Nope, says CSTJ Lew. Although he says it more elegantly than that.

“We disagree. Considering reasonable expectations that the property would appreciate after being repaired and/or renovated, we find that for both years petitioners had the requisite profit motive for otherwise allowable and substantiated deductions even if the total of the deductions exceeds the rental income from the property, subject of course to the limitations on losses from rental activities in section 469.” Idem., as my expensive colleagues would say.

Taishoff says, great, profit motive, but isn’t the worth of those repairs and improvements income to Rog and Kim? And shouldn’t they be capitalized? And isn’t the reduced rent in payment for labor income to the carpenter/roofer?

A shout-out to my colleague Peter Reilly, CPA, a snapper-up of this kind of unconsidered trifles.