The Tax Court has upheld the IRS’s determination that each individual tractor and trailer leased by the taxpayer’s truck rental business was an “item of property” under the self-rental rule of Reg. §1.469-2(f)(6). Thus, net rental income received by the taxpayer from the business should be recharacterized as non-passive income (Veriha v. Commissioner, Dec. 59,155, 139 TC No. 3). The taxpayer’s argument that the entire collection of tractors and trailers from the business and another rental business was one item of property was rejected.
“Many taxpayers have argued that the self-rental rule of Reg. §1.469-2(f)(6) is inequitable due to the fact that net rental income from an item of property is converted from passive to non-passive but net rental loss from an item of property is not so converted, ” Aaron Nocjar, partner, Steptoe & Johnson LLP, Washington, D.C., told CCH. “So, if a taxpayer’s overall rental activity includes the rental of several items of property where some items generate net rental income and others generate net rental loss (such as the taxpayer in Veriha), the taxpayer’s passive activity loss from the rental activity overall is exacerbated.”