Recent Developments

The Cost of Love: Cora lived with Bernie for 22 years handling all household matters, including, cooking, cleaning, and so forth. Bernie must’ve been listening to Paul Simon’s tune (50 ways to leave your lover…) and the couple broke up. Cora filed a palimony suit but Bernie died before the matter resolved. Bernie’s estate claimed a deduction for the palimony claim. The IRS disagreed and the case ended up before the 9th Circuit which held that it was likely that Nevada would join other states (e.g., Arizona and California) in finding that homemaking services like those rendered by Cora can be adequate consideration for a property-sharing agreement between cohabitants, and hence a palimony claim. That claim had to be valued as of the date of Bernie’s death. Estate of Bernard Shapiro v. U.S. , 107 AFTR 2d 2011-XXXX (9th Cir.).

Time in a Bottle: So you beef ‘cause your lawyer keeps time records, but you had best do the same. Losses on passive activities, like owning a limited partnership interest in a real estate rental partnership, are limited as to how they can be deducted. One out is if you meet the requirements to be classified as a real estate professional. IRC Sec. 469(c)(7). This exception from the harsh passive loss rules requires that more than half of personal services performed during a tax year are real property businesses with “material participation”, and that you provide more than 750 hours of service for those businesses  during the year. The taxpayer kept detailed time records, but failed to meet the 750 hour test. Taxpayer spent 1,003 hours managing real estate, but 324 of the hours were spent on operating a short-term (less than 7 day rentals, like a hotel) rental property. Short term rentals aren’t considered a rental activity under the IRS rules. Temp. Reg. 1.469-1T(e)(3)(ii) . 1,003 – 324 = only 679 < 750! Bailey , TC Summ. Op. 2011-22 (Tax Ct.) Remember Jim Croce’s lyrics: “If I could save time in a bottle the first thing that I’d like to do is meet the passive loss rules…”

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