Owners of Rental Properties Not Subject to Passive Activity Loss Rules

Posted by Kim Chen on July 13th, 2016

A husband and wife owned three rental properties during the years at issue. The wife, a part-time ski instructor, managed the rental properties, was involved in extensive renovation efforts, and maintained contemporaneous logs of the time spent on rental activities. Upon examination, the IRS disallowed the taxpayers’ deductions for general rental expenses, claiming that the real estate activities were subject to passive activity loss limitations. The Tax Court disagreed, concluding that the wife qualified as a real estate professional under IRC Sec. 469(c)(7) and that the IRS conceded that she materially participated in the rental activity. Therefore, the taxpayers’ deductions were not limited. Joseph D. Moon , TC Summ. Op. 2016-23 (Tax Ct.).