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

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Matthew L. Roberts

Matthew L. Roberts

Principal

469.998.8482
mroberts@freemanlaw.com

Mr. Roberts is a Principal of the firm. He devotes a substantial portion of his legal practice to helping his clients successfully navigate and resolve their federal tax disputes, either administratively, or, if necessary, through litigation. As a trusted advisor he has provided legal advice and counsel to hundreds of clients, including individuals and entrepreneurs, non-profits, trusts and estates, partnerships, and corporations.

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

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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