WEBVTT NOTE This file was generated by Descript 00:00:08.220 --> 00:00:11.840 Speaker: Welcome to Real Estate is Taxing, where we talk about all things real estate 00:00:11.870 --> 00:00:16.880 tax, and break down complex concepts into understandable, entertaining tax topics. 00:00:17.439 --> 00:00:21.259 My name is Natalie Kalady, I'm your host, and I am so excited 00:00:21.259 --> 00:00:22.670 that you've decided to join me. 00:00:23.288 --> 00:00:23.678 Microphone (Shure MV7): Hello. 00:00:23.678 --> 00:00:24.908 Hello everyone. 00:00:24.908 --> 00:00:27.188 Welcome to this week's episode. 00:00:27.848 --> 00:00:33.518 This summer has been a pretty good summer for tax court cases. 00:00:34.088 --> 00:00:38.348 And what I mean is that there have just been several that I specifically have 00:00:38.348 --> 00:00:40.388 enjoyed and thought were interesting. 00:00:40.838 --> 00:00:45.548 And that's because there have been a handful that relate to real estate. 00:00:46.378 --> 00:00:49.318 Microphone (Shure MV7)-1: Now I love anything court related. 00:00:49.828 --> 00:00:51.718 I love reading true crime books. 00:00:51.778 --> 00:00:53.698 I love listening to the podcast. 00:00:53.788 --> 00:00:58.648 So for me, Reading tax court cases is extra exciting. 00:00:58.988 --> 00:01:02.528 But even if you do not find that as cool as I do. 00:01:02.858 --> 00:01:07.328 These are still something that you should hold at least a little bit of interest in. 00:01:07.958 --> 00:01:12.518 The tax code itself is very rarely black and white. 00:01:12.668 --> 00:01:15.098 There's a lot of room for interpretation. 00:01:15.428 --> 00:01:22.238 There's a whole lot of guidance and nuance that happens after the code is written. 00:01:22.808 --> 00:01:27.308 And the tax court results are really just one of those pieces of guidance. 00:01:28.028 --> 00:01:29.948 Reading these court cases. 00:01:30.338 --> 00:01:35.708 Really does give us fantastic insight to the way the courts 00:01:35.708 --> 00:01:39.968 have been leaning on some of these topics that are in that gray area. 00:01:40.478 --> 00:01:44.978 And when it comes to real estate, there's plenty of gray area that we 00:01:44.978 --> 00:01:46.898 love playing in with the tax code. 00:01:47.318 --> 00:01:51.548 So getting these more recent kind of thoughts from the tax court. 00:01:51.788 --> 00:01:54.998 Getting this feedback, seeing how they're viewing things. 00:01:55.298 --> 00:01:57.008 This is invaluable. 00:01:57.878 --> 00:01:59.588 What I have for you guys today. 00:01:59.978 --> 00:02:04.928 Is two court cases that are both tax court summary opinions from this summer. 00:02:05.198 --> 00:02:08.978 So these are super recent from July and August. 00:02:09.308 --> 00:02:11.978 And both are related to real estate. 00:02:12.678 --> 00:02:15.288 Microphone (Shure MV7)-2: The first case that I want to walk you 00:02:15.288 --> 00:02:19.788 guys through is from last month, this came out August 20, 24. 00:02:20.148 --> 00:02:24.108 This is TC summary, 2024 dash 17. 00:02:24.498 --> 00:02:25.848 Eason V commissioner. 00:02:26.568 --> 00:02:31.188 So this case was interesting because it deals with a topic that comes up 00:02:31.218 --> 00:02:35.688 pretty frequently when it comes to real estate in two different capacities. 00:02:36.378 --> 00:02:42.798 The first one being, if you pay for one of those 40, 50, $60,000 real 00:02:42.798 --> 00:02:45.678 estate guru courses, is it deductible? 00:02:45.678 --> 00:02:47.418 And when is, or isn't it. 00:02:48.018 --> 00:02:53.298 And the other part of the question being, if you are new in real estate. 00:02:53.718 --> 00:02:56.628 When does your business actually begin? 00:02:56.748 --> 00:03:00.318 When are you open for business where you can start writing off? 00:03:00.798 --> 00:03:02.688 All of your costs that are incurred. 00:03:03.198 --> 00:03:08.268 So those were the two big questions that came up in this case. 00:03:08.968 --> 00:03:15.118 So this summary opinion relates to a couple who owned two rentals in 2016. 00:03:15.928 --> 00:03:18.178 One of them, they maintained as a rental. 00:03:18.658 --> 00:03:22.918 The second rental property they had sold by June of 2016. 00:03:23.608 --> 00:03:27.088 So at this point, they've got a little bit of real estate experience. 00:03:27.268 --> 00:03:31.228 They just actively got rid of half of their real estate business 00:03:31.228 --> 00:03:32.728 that existed, so to speak. 00:03:33.028 --> 00:03:34.588 So they've got one rental left. 00:03:35.288 --> 00:03:36.638 That same year. 00:03:37.208 --> 00:03:38.888 The taxpayer in this case. 00:03:39.368 --> 00:03:40.538 Lost his job. 00:03:41.138 --> 00:03:44.348 Close to the beginning of the year, the taxpayer lost his job. 00:03:44.378 --> 00:03:48.458 And the couple started looking into other ways they could supplement their income 00:03:48.848 --> 00:03:51.338 and other opportunities to help make up. 00:03:51.638 --> 00:03:54.098 For that last paycheck, they were used to getting. 00:03:54.638 --> 00:03:59.228 And one of the things they came across was real estate investing. 00:03:59.708 --> 00:04:03.398 So they were already a little bit familiar with it and they had some 00:04:03.398 --> 00:04:09.098 experience with rentals, but they stumbled across an ad for a real estate 00:04:09.098 --> 00:04:11.408 course or courses that you could take. 00:04:11.828 --> 00:04:15.398 That would teach you how to invest presumably. 00:04:15.648 --> 00:04:16.848 In some capacity. 00:04:17.548 --> 00:04:20.128 The court case does not go into the details. 00:04:20.608 --> 00:04:24.988 Of exactly what was covered in that course or those courses. 00:04:25.468 --> 00:04:31.078 But what it does say is that the taxpayer and the spouse decided to invest in this 00:04:31.588 --> 00:04:40.768 And they spend $41,934 on two different courses from this same real estate. 00:04:41.038 --> 00:04:43.408 Uh, quote, education provider. 00:04:44.488 --> 00:04:48.268 So once they bought these courses, The couple, then went 00:04:48.268 --> 00:04:50.338 on to set up an S corporation. 00:04:50.488 --> 00:04:53.998 So they established an S Corp in July of 2016. 00:04:54.658 --> 00:04:57.418 And they got some business cards. 00:04:57.478 --> 00:04:59.638 They got some custom branded stationary. 00:05:00.208 --> 00:05:04.498 But outside of that, Nothing else really happened. 00:05:05.338 --> 00:05:09.148 So there was no additional purchases of real estate. 00:05:09.748 --> 00:05:13.468 There were no proven efforts at marketing. 00:05:13.768 --> 00:05:14.878 For a real estate. 00:05:14.908 --> 00:05:18.088 There was no proven efforts at advertising that they were in 00:05:18.088 --> 00:05:19.768 the market to buy real estate. 00:05:20.188 --> 00:05:24.988 Really not a whole lot else happened after they set up this S corporation 00:05:25.288 --> 00:05:26.908 and bought some business cards. 00:05:27.608 --> 00:05:28.988 Also worth noting. 00:05:29.688 --> 00:05:31.698 Is that by 2018. 00:05:32.538 --> 00:05:38.058 So within a year and a half from when they purchased these large expensive courses. 00:05:38.628 --> 00:05:41.958 The company through whom they had bought the courses. 00:05:42.468 --> 00:05:43.848 Went out of business. 00:05:44.688 --> 00:05:48.408 So another piece to this specific case that was taken 00:05:48.408 --> 00:05:50.298 into account by the tax court. 00:05:50.688 --> 00:05:54.408 Was the fact that this couple did anticipate having this 00:05:54.438 --> 00:05:56.838 ongoing support and resources. 00:05:57.168 --> 00:06:01.038 And all of this training and the moon and the sun and everything else gurus 00:06:01.068 --> 00:06:03.348 promise you when you give them $40,000. 00:06:04.218 --> 00:06:05.868 And by 2018. 00:06:06.348 --> 00:06:07.488 None of it was there. 00:06:07.578 --> 00:06:09.048 It had all disappeared. 00:06:09.078 --> 00:06:12.138 The company went under and they were now on their own. 00:06:12.898 --> 00:06:14.758 Microphone (Shure MV7)-3: So the year in question. 00:06:15.208 --> 00:06:18.778 For this couple's court case is 2016. 00:06:19.588 --> 00:06:24.508 So 2016 is the year when, as a recap, they had one rental property. 00:06:24.868 --> 00:06:26.848 They had sold off their other rental. 00:06:27.268 --> 00:06:33.148 Husband lost his job and they paid 40,000 plus dollars to accompany 00:06:33.148 --> 00:06:34.588 for real estate education. 00:06:35.248 --> 00:06:39.658 They then set up an S corporation, got some business cards and stationary. 00:06:40.438 --> 00:06:43.588 And that was the extent of the business operations. 00:06:44.138 --> 00:06:47.558 in this case, there were a few key considerations. 00:06:47.978 --> 00:06:48.998 That were looked at. 00:06:50.808 --> 00:06:52.278 The first consideration. 00:06:52.998 --> 00:06:53.598 Is. 00:06:54.258 --> 00:06:56.478 Under code section 1 62. 00:06:57.018 --> 00:07:00.018 When is the taxpayer entitled to deduct? 00:07:00.558 --> 00:07:04.818 An expense as a business expense that is ordinary and necessary. 00:07:04.848 --> 00:07:07.788 Like when is it rightfully able to be deducted? 00:07:08.358 --> 00:07:11.178 And a part of the wording to that code section. 00:07:11.628 --> 00:07:17.508 Is that it relates to ordinary or necessary expenses paid or incurred? 00:07:17.958 --> 00:07:22.578 During a tax year in quote, carrying on any trader business. 00:07:23.838 --> 00:07:29.028 Now a lot of businesses do not make money for their first few years. 00:07:29.058 --> 00:07:30.288 That's not uncommon. 00:07:30.588 --> 00:07:34.188 A lot of businesses lose lots of money for multiple years that does 00:07:34.188 --> 00:07:37.818 not make or break whether or not someone is operating a business. 00:07:38.448 --> 00:07:39.858 However, in this case. 00:07:40.548 --> 00:07:46.488 There was all of the expense with none of the income, but also none of 00:07:46.488 --> 00:07:48.978 the proven effort to generate income. 00:07:49.428 --> 00:07:51.678 And none of the provable attempts. 00:07:52.128 --> 00:07:58.098 To actually continue to operate a business after buying the course, setting 00:07:58.098 --> 00:08:02.238 up the company, buying some business cards that was the end of their effort. 00:08:02.288 --> 00:08:08.738 So for 2016, This couple reported over $40,000 of expenses as 00:08:08.738 --> 00:08:10.748 deductible business expenses. 00:08:11.528 --> 00:08:15.668 But when the court went back and looked, they really had no proof. 00:08:16.058 --> 00:08:18.188 That a good faith attempt was made. 00:08:18.668 --> 00:08:25.058 To actually run or operate or carry on a trader business. 00:08:26.258 --> 00:08:28.178 Part of the reason why. 00:08:28.898 --> 00:08:34.598 Is that it was never clearly defined what this couple's business was. 00:08:35.138 --> 00:08:37.928 So this makes things a lot trickier, right? 00:08:37.958 --> 00:08:43.178 If someone is opening a bakery, it's pretty clear that as of the time 00:08:43.178 --> 00:08:46.508 their doors are open and they've got a case filled with macaroons. 00:08:46.868 --> 00:08:48.638 They are open as a bakery. 00:08:48.638 --> 00:08:50.798 That is what they're offering to the public. 00:08:51.518 --> 00:08:57.998 We had no defining information on what this couple's business was, except 00:08:57.998 --> 00:09:00.098 for something related to real estate. 00:09:00.848 --> 00:09:01.838 the only. 00:09:02.408 --> 00:09:07.538 Defining information, the couple gave about their S-corp and why it was set 00:09:07.538 --> 00:09:12.428 up and what they were going to use it for is that they said that they quote, 00:09:12.548 --> 00:09:18.968 formed it to provide advice and guidance to real estate owners and investors. 00:09:19.418 --> 00:09:23.528 The court went on to note that although the specific services that 00:09:23.528 --> 00:09:25.808 they intended to offer were unclear. 00:09:26.318 --> 00:09:28.808 That, whatever it was, they were going to offer. 00:09:28.808 --> 00:09:33.788 did not require, or they had not applied for, or received any kind of 00:09:33.788 --> 00:09:38.348 state or local or federal licenses, business license, et cetera. 00:09:39.428 --> 00:09:41.798 So just a quick recap. 00:09:42.548 --> 00:09:45.848 We've got a couple who've owned, two rental properties. 00:09:45.878 --> 00:09:47.138 They've currently got one. 00:09:47.618 --> 00:09:51.038 They just paid $40,000 for a course on real estate. 00:09:51.428 --> 00:09:56.828 They set up an S-corp literally the same month that they paid for that course. 00:09:57.488 --> 00:10:01.718 And then told the court, the purpose of that S corporation was 00:10:01.718 --> 00:10:06.458 to provide guidance and advice to real estate owners and investors. 00:10:07.418 --> 00:10:11.498 So, this is just a side note, little sidebar here. 00:10:12.068 --> 00:10:14.828 That there are more people doing this. 00:10:15.338 --> 00:10:18.188 Then I think a lot of people realize. 00:10:19.118 --> 00:10:23.168 This is a couple who paid for a real estate course, and then we're 00:10:23.168 --> 00:10:25.628 turning around and what their stated. 00:10:25.928 --> 00:10:31.868 Plan was for their corporation, was to teach other real estate investors. 00:10:32.198 --> 00:10:34.388 And guide them on their real estate. 00:10:34.958 --> 00:10:38.738 The only experience they had was two rentals and having just 00:10:38.738 --> 00:10:40.988 paid $40,000 to someone else. 00:10:41.528 --> 00:10:46.418 So an interesting overlap that just adds a little bit of warning to be careful 00:10:46.478 --> 00:10:49.028 and actually look into the background. 00:10:49.448 --> 00:10:54.368 Of people offering these courses and what they are benefiting from it. 00:10:54.848 --> 00:10:55.988 And if them. 00:10:56.378 --> 00:11:00.458 Offering this course and selling you this course is making them more 00:11:00.458 --> 00:11:04.628 money than their actual real estate dealings, or if they don't actually have 00:11:04.628 --> 00:11:07.028 experience in these areas of real estate. 00:11:07.538 --> 00:11:09.608 And just be, just be careful. 00:11:10.808 --> 00:11:15.488 So at the end of the day, The court looked at all of these pieces of 00:11:15.488 --> 00:11:20.738 information and they determined that this couple did not ever open a business. 00:11:21.128 --> 00:11:25.028 They had never put forth a valid attempt. 00:11:25.448 --> 00:11:26.198 Two. 00:11:26.588 --> 00:11:29.168 Really operate any kind of business. 00:11:29.198 --> 00:11:33.518 There was no continuing ongoing operations. 00:11:33.518 --> 00:11:35.078 It never even really started. 00:11:35.348 --> 00:11:39.368 There was never any defined factor of what it was except for providing 00:11:39.368 --> 00:11:41.678 general advice and guidance to others. 00:11:42.128 --> 00:11:46.658 But they hadn't marketed that or tried to sell that or anything else. 00:11:47.908 --> 00:11:55.258 So on this TC summary, 20, 24 17, the court disallowed, all of that expense. 00:11:55.978 --> 00:11:58.948 Because it wasn't considered a valid business expense. 00:11:59.518 --> 00:12:02.308 So the moral of this case and this story. 00:12:02.818 --> 00:12:07.468 Is that just paying for something to learn how to do something or to learn 00:12:07.468 --> 00:12:11.998 about something does not automatically mean it will be tax deductible. 00:12:12.478 --> 00:12:16.438 Especially if you either have not. 00:12:16.858 --> 00:12:18.838 Started a business in that industry. 00:12:18.838 --> 00:12:20.158 And this is related to it. 00:12:20.788 --> 00:12:26.308 Or if you never do, if you never get to that point, it's even less likely 00:12:26.308 --> 00:12:27.838 that it's going to be deductible. 00:12:28.108 --> 00:12:31.438 So just be cautious before spending large amounts. 00:12:31.978 --> 00:12:35.008 On potential businesses, right? 00:12:35.068 --> 00:12:39.568 On something that you are hoping to open a business doing, because 00:12:39.568 --> 00:12:41.098 it might not be deductible. 00:12:41.638 --> 00:12:47.128 And the secondary caution takeaway is be careful of who you are paying 00:12:47.158 --> 00:12:51.418 for education and advising and look into their background because these 00:12:51.418 --> 00:12:53.908 guys were going to sell education. 00:12:54.298 --> 00:12:57.628 The same month they had just paid to learn the information. 00:12:57.988 --> 00:12:59.488 So just be careful. 00:13:00.188 --> 00:13:02.288 The next case from this summer. 00:13:02.648 --> 00:13:04.238 I really liked reading. 00:13:04.358 --> 00:13:06.968 And this was from July of 2024. 00:13:07.358 --> 00:13:11.828 This is TC opinion, 2024 dash 13. 00:13:12.188 --> 00:13:15.008 And this is for this and more V commissioner. 00:13:15.818 --> 00:13:17.828 This case related to. 00:13:18.328 --> 00:13:19.408 Short-term rental. 00:13:20.098 --> 00:13:21.028 So here. 00:13:21.598 --> 00:13:24.118 Is the interesting dynamic of this case. 00:13:24.898 --> 00:13:26.728 Is that it was argued. 00:13:27.208 --> 00:13:30.568 Based on the premise of real estate professional status. 00:13:30.988 --> 00:13:33.028 And it probably shouldn't have been. 00:13:33.728 --> 00:13:41.138 So in this case for a dozen more married, couple decide in 2020 that 00:13:41.138 --> 00:13:43.298 they are building a carriage house. 00:13:43.658 --> 00:13:45.068 In the back of their property. 00:13:45.428 --> 00:13:48.788 They had actually obtained permits for this a couple of years earlier, 00:13:49.118 --> 00:13:54.098 but 2020 is the year that they finally get to move forward with this project. 00:13:54.518 --> 00:13:56.888 And start constructing this carriage house. 00:13:57.588 --> 00:14:02.118 Now, both the taxpayer and the spouse work, full-time 00:14:02.298 --> 00:14:04.158 at least 40 hour a week jobs. 00:14:04.638 --> 00:14:07.998 The taxpayer makes just under 80,000 a year. 00:14:07.998 --> 00:14:10.878 The spouse makes just over 80,000 a year. 00:14:11.388 --> 00:14:13.848 So this puts their overall income. 00:14:14.208 --> 00:14:19.038 Well above the amount where you can deduct some level of passive losses. 00:14:19.668 --> 00:14:21.678 Unless you're a real estate professional. 00:14:21.978 --> 00:14:24.498 Or unless you meet the short-term rental loophole. 00:14:25.608 --> 00:14:27.258 So during 2020. 00:14:27.798 --> 00:14:32.298 They start building this carriage house and the taxpayer spent a lot of 00:14:32.298 --> 00:14:34.578 time doing a lot of the work himself. 00:14:35.758 --> 00:14:38.488 Microphone (Shure MV7)-4: So he would work full time and then 00:14:38.758 --> 00:14:43.348 per his testimony, he would spend all of his evenings and weekends. 00:14:43.828 --> 00:14:46.438 Working on this carriage house. 00:14:46.958 --> 00:14:50.918 He did also say that he hired out any of the work that he 00:14:50.918 --> 00:14:52.718 wasn't able to do himself. 00:14:53.198 --> 00:14:58.208 But he said he spent well over 2,500 hours that year. 00:14:58.538 --> 00:15:01.478 Working on and to building this carriage house. 00:15:02.378 --> 00:15:05.318 So here's where things go sideways. 00:15:06.218 --> 00:15:11.798 So this couple completes this carriage house in 2020, they put it in service 00:15:11.828 --> 00:15:14.318 in October as a short-term rental. 00:15:15.158 --> 00:15:23.468 And for the 2020 tax year, they deduct a schedule II loss of just over $22,000. 00:15:24.168 --> 00:15:24.738 So. 00:15:25.488 --> 00:15:26.928 Their return gets looked at. 00:15:27.828 --> 00:15:30.798 It goes under audit and ends up in court. 00:15:30.978 --> 00:15:33.738 And here were the key things that were considered. 00:15:34.668 --> 00:15:40.158 The first being, if this loss was valid to be deducted. 00:15:41.178 --> 00:15:47.418 But the only consideration was, if this loss was able to be 00:15:47.418 --> 00:15:49.938 deductible as a non-passive loss. 00:15:50.748 --> 00:15:56.718 Based on the premise of the taxpayer being a qualified real estate professional. 00:15:57.288 --> 00:16:00.228 Meaning they spend more than half of their time. 00:16:00.768 --> 00:16:03.528 On this real property trader business. 00:16:04.428 --> 00:16:07.758 The court felt that was not super likely. 00:16:08.388 --> 00:16:11.238 Even though the taxpayer testified, he spent more than 00:16:11.238 --> 00:16:13.878 2,500 hours on this carriage house. 00:16:14.298 --> 00:16:17.358 He had no proof other than this testimony. 00:16:18.018 --> 00:16:21.258 And they just didn't find it super likely. 00:16:21.738 --> 00:16:27.318 That he was working even more on this one carriage house and building this property. 00:16:27.318 --> 00:16:29.598 Then he was at his full-time job. 00:16:30.498 --> 00:16:31.818 In addition to this. 00:16:32.448 --> 00:16:36.768 In October when they put this property in service as a short-term 00:16:36.768 --> 00:16:40.758 rental, they immediately listed it with a management company. 00:16:41.178 --> 00:16:43.788 And that management company handled everything. 00:16:44.128 --> 00:16:46.978 the cleaning, the tenant screening, all of it. 00:16:47.368 --> 00:16:52.918 So not only was their question to the amount of hours spent during the build. 00:16:53.428 --> 00:16:57.418 But then once it was operational, they immediately handed off all 00:16:57.418 --> 00:17:00.628 of the day-to-day management and time to someone else. 00:17:01.208 --> 00:17:06.158 So in this case, this loss was determined to be passive. 00:17:06.218 --> 00:17:09.848 And the deductability of that loss was disallowed. 00:17:10.268 --> 00:17:11.978 Due to their income level. 00:17:12.368 --> 00:17:12.488 Okay. 00:17:12.848 --> 00:17:15.398 Here's what's really interesting to me with this. 00:17:15.938 --> 00:17:18.008 We don't have all of the details. 00:17:18.308 --> 00:17:20.108 But based on what we know. 00:17:20.648 --> 00:17:25.688 This was a short-term rental and this taxpayer did spend a 00:17:25.688 --> 00:17:27.788 lot of time on this property. 00:17:27.788 --> 00:17:30.668 Now, once it wasn't service, they were no longer managing it. 00:17:31.418 --> 00:17:34.298 But I think it's incredibly interesting. 00:17:34.958 --> 00:17:40.268 That the other options for it being non passive, weren't brought up. 00:17:40.818 --> 00:17:44.028 I want everyone to bookmark this case. 00:17:44.688 --> 00:17:49.428 And the next time you have a CPA or tax professional. 00:17:49.728 --> 00:17:51.258 When you talk to them. 00:17:51.588 --> 00:17:56.388 And they tell you that rental losses are going to be passive, unless 00:17:56.388 --> 00:17:58.098 someone's a real estate professional. 00:17:58.398 --> 00:18:01.578 Or unless the rental goes on, schedule C. 00:18:02.328 --> 00:18:04.308 I want you to send them this case. 00:18:04.908 --> 00:18:06.738 Because this is what happens. 00:18:07.428 --> 00:18:11.388 When you try to take advantage of something in real estate when it 00:18:11.388 --> 00:18:15.558 comes to the tax code, but either you or who you're working with. 00:18:15.558 --> 00:18:19.068 I don't know what they're doing. 00:18:19.568 --> 00:18:21.398 This is really nuanced. 00:18:21.698 --> 00:18:25.088 There are more than one ways for a rental to be non passive. 00:18:25.568 --> 00:18:29.648 And in this case, we don't know the average length of stay. 00:18:29.648 --> 00:18:33.788 We know it was a short-term rental and we know it was only rented for a few months. 00:18:34.358 --> 00:18:40.238 So if it turned out that the average guest stay was seven days or less, And if it 00:18:40.238 --> 00:18:45.158 could be proved that even with management, this taxpayer still met material 00:18:45.158 --> 00:18:47.288 participation through one of the rules. 00:18:48.008 --> 00:18:51.878 I feel like they would have had a much better chance. 00:18:52.418 --> 00:18:56.918 Of making that argument to be able to deduct this loss in tax 00:18:56.918 --> 00:19:01.208 court, then making the argument for real estate professional status. 00:19:01.958 --> 00:19:05.348 But that's not the argument that the taxpayer made. 00:19:06.008 --> 00:19:08.528 They argued that they qualified for reps. 00:19:09.008 --> 00:19:13.298 They were not aware of this short-term rental loophole or if they were, they 00:19:13.298 --> 00:19:15.578 didn't think it would be the better route. 00:19:16.028 --> 00:19:16.958 I don't know. 00:19:17.288 --> 00:19:22.598 But for me looking at this as an outsider, it was incredibly frustrating because 00:19:22.598 --> 00:19:27.308 the first thought I had was there was likely a much stronger argument for 00:19:27.308 --> 00:19:29.618 them to be able to deduct that loss. 00:19:30.098 --> 00:19:35.948 So, again, this was TC summary opinion, 2024 dash 13. 00:19:36.338 --> 00:19:37.838 And this is from July. 00:19:37.868 --> 00:19:39.338 This was just put out. 00:19:39.618 --> 00:19:42.978 And this is related to a 2020 tax year return. 00:19:43.308 --> 00:19:45.168 So this is all very recent. 00:19:45.588 --> 00:19:50.538 And wasn't presented in a way that was most likely going to be in the 00:19:50.538 --> 00:19:55.728 best interest of getting to maintain that non-passive rental loss. 00:19:56.428 --> 00:20:00.328 Microphone (Shure MV7)-5: Like I said, Lots of interesting tax court 00:20:00.328 --> 00:20:03.328 cases this summer, or at least to me. 00:20:03.838 --> 00:20:07.228 So I hope you guys found this somewhat interesting or maybe learn 00:20:07.228 --> 00:20:08.938 something new from these cases. 00:20:09.478 --> 00:20:13.018 I will link to both of these in the show notes. 00:20:13.018 --> 00:20:15.028 If you want to read over them yourself. 00:20:15.748 --> 00:20:18.358 And again, I can't reiterate this enough. 00:20:18.358 --> 00:20:22.138 Reading through these court cases is such a good way to learn. 00:20:22.528 --> 00:20:25.858 More of the, between the lines guidance. 00:20:26.158 --> 00:20:28.168 That relates to tax. 00:20:28.558 --> 00:20:30.238 It is not all black and white. 00:20:30.658 --> 00:20:33.988 And what is on the IRS website is only. 00:20:34.618 --> 00:20:37.708 An interpretation of the actual tax law. 00:20:38.128 --> 00:20:42.928 And it's not even substantial authority that you could bring into a court case 00:20:42.928 --> 00:20:45.178 like this and use to defend yourself. 00:20:45.478 --> 00:20:50.008 You need to know the law, you need to know the related other court cases 00:20:50.008 --> 00:20:51.778 that you can lean on for precedent. 00:20:52.138 --> 00:20:57.268 So super interesting area to familiarize yourself with, again, I'll link below. 00:20:57.928 --> 00:21:01.018 If you guys have questions, pop into the Facebook groups, 00:21:01.228 --> 00:21:03.028 those are linked below as well. 00:21:03.428 --> 00:21:07.208 So as always, if you've enjoyed this episode or if you know 00:21:07.208 --> 00:21:10.058 someone who you think would enjoy this, please share it with them. 00:21:10.568 --> 00:21:11.108 And. 00:21:12.038 --> 00:21:13.538 I will talk to you guys next week. 00:21:14.149 --> 00:21:16.488 Mhm.