Recent Tax Court Case Takes on Section 469 Passive Activity Loss Limitations

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Lucero v. Comm’r, T.C. Memo. 2020-136 | September 29, 2020 | Pugh, J. | Dkt. No. 588-18

Short SummaryThe taxpayers owned short-term rental property in California.  The taxpayers rented the property to tenants in 2014 and 2015.  They paid a property management company to manage the property’s day-to-day rental operations, including advertising, cleaning, landscaping, and responding to tenant complaints.  However, the taxpayer maintained control over the setting of rental rates and approving expenses over $100.  The taxpayers reported losses from the rental property, and the IRS denied the losses.

Key Issue:  Whether any of the taxpayers’ real estate losses reported on their Schedule E, Supplemental Income and Loss, are limited by Section 280A or Section 469 for the years at issue.

Primary Holdings

Key Points of Law:

InsightAs the Lucero decision shows, the Section 469 passive activity loss rules continue to be a trap for taxpayers who rent properties during any given tax year.  Accordingly, taxpayers with rental activities and losses are wise to consult tax advisors regarding whether they may deduct their losses under Section 469.


For more coverage of U.S. Tax Court cases, see our weekly post, The Tax Court in Brief.


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