In a recent case, the United States Tax Court addressed the grouping of activities under the passive loss rules when one of the activities is a rental activity. The case highlights some of the rules affecting how the passive loss limitations affect real estate owners.
Section 469
In 1986, Congress enacted Internal Revenue Code section 469 to limit a taxpayer’s ability to use losses and credits from “passive” activities to offset other income. Congress was concerned with the growing participation of taxpayers in tax shelters, enterprises in which taxpayers would engage in certain activities to obtain deductions or credits which exceeded the taxpayers’ true economic costs from these activities, and then use these deductions or credits to offset salary or other income.
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