(petitioner earned six-figure income as vice principal of high school in MN, but owned single-family house in K.C. near K.C. airport; house rented to tenants in 2004 and 2005; house has appreciated in value but is unfurnished; petitioner would post signs that house available to rent; claimed expenses on home for 2006 and 2007 exceeded income from home which IRS disallowed because home not held for production of income and losses were from passive activity; court held that house held for production of income and thus all ordinary and necessary expenses paid or incurred during tax year are deductible under I.R.C. Sec. 212; active participation test of I.R.C. Sec. 469(i) satisfied which allows petitioner to deduct up to $25,000 of rental real estate losses (subject to phase-out starting at AGI of $100,000; deductions allowed for substantiated expenses; court estimated some unsubstantial expenses under Cohan rule; deductions allowed totaled 413,000; 20 percent accuracy-related penalty imposed).
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