Taxpayer is not a real estate professional.

• Author: Beavers, James A.

The Tax Court held that a married taxpayer who filed a separate return did not qualify as a real estate professional through attribution of her husband's activities, and therefore she could not deduct her rental real estate losses.

Background

During 2008, Julie Oderio was married and worked full time for a real estate investment company. She also owned a rental property in San Jose, Calif. She filed an income tax return in 2008 claiming married filing separately status.

Oderio's 2008 return included a deduction for a rental loss of $29,583 (rental loss) for the San Jose rental property. She took the position that she qualified as a real estate professional, so the loss was nonpassive. The IRS examined Oderio's return and issued her a deficiency notice disallowing the rental loss deduction. Oderio challenged the IRS's determination in Tax Court.

The Tax Court's Holding

The Tax Court held that Oderio's rental loss was a passive loss under Sec. 469 and she could not deduct the loss in 2008. Specifically, the court found that she misinterpreted Sec. 469 and the underlying regulations in arguing that her husband's activity should be attributed to her in determining whether she was a real estate professional.

The court explained that rental activity is generally treated as per se passive regardless of whether a taxpayer materially participates in the activity under Sec. 469(c)(2). However, a taxpayer's rental activity is not treated as perse passive if he or she satisfies the requirements to be considered a real estate professional in Sec. 469(c)(7)(B). A taxpayer is a real estate professional for a year if:

(i) more than one-half of the personal services performed in trades or businesses by the taxpayer during the taxable year are performed in real property trades or businesses in which the taxpayer materially participates, and

(ii) the taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates.

In the case of a joint return, these requirements are satisfied if and only if either spouse separately satisfies both requirements.

Oderio conceded that she did not separately satisfy the real estate professional requirements. However, she argued that her husband did, and therefore she satisfied the requirements. Oderio argued that under Temp. Regs. Sec. 1.469-5T(f)(3) and Regs. Sec. 1.469-9(c)(4), her husband's activities should be attributed to her for...