Married Couple Denied Rental Real Estate Loss Deduction

21 August 2019

A married couple was denied rental real estate loss deduction because the husband failed to qualify as a “real estate professional” under the passive loss rules of Code Sec. 469. The taxpayers contended that they had substantiated sufficient hours to enable the husband by himself to qualify as a real estate professional for the tax year at issue. Further, the taxpayers provided a calendar for each rental property that purported to show the number of hours the taxpayers worked each day. However, the calendar consisted of ambiguous entries, showed no more than 932 recorded hours for two rental properties and did not differentiate as to which hours and tasks were attributable to which taxpayer. Moreover, the recorded hours of the calendar lacked credibility because they showed inflationary patters as every task recorded on the calendars, no matter how trivial, was listed as having taken at least one hour to complete. The taxpayers’ recorded hours for snow removal activities and supervising of contractors were also grossly inflated. Therefore, the 781 recorded hours attributed to the husband were inflated by at least 150 hours. Consequently, the taxpayers failed to carry their burden of proving that either of them satisfied the 750-hour service requirement under Code Sec. 469.

R. Hairston, TC Memo. 2019-104,