Sec. 469 - Spidell

Sec. 469

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Message Board Sec. 469

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    • #269135
      Paul Cheatham
      Participant

      My client owns and operates a machine shop as an S-corp. It is very profitable. Last year he purchased a building in his name, indvidually, which is used solely by the S-corp. The S-corp pays him rent. The Schedule E on his return shows a significant loss, primarily due to depreciation. Can he offset the Schedule E rental loss against the S-corp K-1 income?

      The CPA in the office says “No”. I (the EA) say “Yes”. You have the swing-vote. We have been going “round and round” in IRC Sec. 469, Self-Rental rules, etc.

    • #269136
      Diane White
      Participant

      I agree with the CPA. Under IRC Sec. 469 Self Rental income is not passive. Self rental losses are passive and can only be used to offset passive income. IRC Sec. 469(c)(2) and 469(c)(4).

    • #269140
      Gerald Weiss
      Participant

      You (the EA) are correct IF the taxpayer does a grouping election.

      Treas. Reg. 1.469-4(c)(1) provides that once grouped, the activities are treated as a single activity.  This allows the rental loss from the Schedule E to offset the net profit from the S corporation.

    • #269554
      Lynn Freer
      Participant

      I don’t see anything in that regulation that allows for including a self rental in grouping. I believe the Diane’s answer is correct. See regs under 1.469-2

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