section 469 and regulations

[morrisliberty]

hello,



I am attempting to understand the passive activity rules. Regulation 1.469-1T{e}{3} states there is a definition of rental activity and 6 exceptions to this definition of rental activity. My question is section 469{c}{2} and section 469 {c} {7} and section 469{j}{10} are they similiar exceptions as the above mentioned 6 exceptions in the regulations? I do not think so but I am not sure why. Could anyone explain why? In other words are the passive activity rules similiar for the 6 exceptions and the three sections mentioned?

[mwcpa]

morris....
the "law" is written by Congress.... that's the Internal Revenue Code ("IRC")

the "regulations" are, to make it simple, interpretations or guidelines of the law (which in many cases have the power of law, given the authority Congress gave the IRS in the law)

In many cases regulations restate the law.... often with examples.....

I did not happen to review the regulations and the 3 sections of law you are questions, that will take a lot of time.... I would try reading some of the materials published by IRS namely publication 925 www.irs.gov/taxtopics/tc425.html or sites like the AICPA store www.cpa2biz.com where on can buy AICPA publications (members get discounts) or look at CCH, RIA, and others like that who sell books on the subject.

Passive loss rules can be very very difficult to understand, and to explain them in detail, as you seem to be asking, in a forum like this can be dangerous for readers who may rely on something that is often very fact sensitive.

[TheOtherMe]

mwcpa is correct. The passive activity rules are very complex and not intended for a forum like this. There are courses available to assist you.

[rangerj]

This is one of those code sections, aka complexities, that folks twitch (spelling) about. If you follow the code from title to subtitle to section to subsection you will determine that section 469 is about when (timing) you can deduct certain expenses, or losses, or credits. Folks want their activity to be an "active trade or business" when they have losses so that the loss is deductible currently without limitation, as an ordinary loss, but if they have a gain they want the activity considered passive and the asset considered a capital asset rather than "stock in trade" so that the gain is a capital gain. The beauty of our freedom and capitalist system is that two people can have like kind businesses and operate them in two different ways so that one is an active trade or business and one is a passive activity. Think of a 20 unit apartment building where one rents units on a day, week, or monthly basis like a hotel/motel, that is an active trade or business, and the other person has yearly rentals and a passive rental activity. Hertz and Avis rent cars, but they are certainly not a passive activity. The "personal use" aspect of the typical vacation home that is also rented is a further complication. As stated above this is a topic that has inspired huge volumes because each situation is unique with its own set of facts and circumstances. We are free to be different and complicated and Congress has tried to address that with statutes that are complicated and are NOT "black and white". The Treasury Department is charged with writing regulations, that is the governments official interpretation of the tax statutes, but they do NOT have the impetus of law unless that is given to the Secretary of the Treasury, or the Commissioner of the IRS, by Congress in the specific statute. There are many instances where the courts have had a different interpretation of the statute than the Treasury Secretary, or the Commissioner. Note the Commissioner issues Notices, Revenue Rulings, Revenue Procedures, Publications, Private Letter Rulings, etc. You could request a Private Letter Ruling.