Treasury Regulations · 26 CFR
§ 1.469-1T. General rules (temporary).
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 469
Cite as 26 CFR § 1.469-1T
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- February 25, 1988 by T.D. 8175
- Last amended
- May 17, 2002 by T.D. 8996
- Issued under
- 26 U.S.C. § 469
- Length
- 10,969 words · about 48 min to read
- Defines
- 6 terms
- Cross-references
- cites 16 Code sections and 10 regulations; cited by 15
(i) In 1991, an individual's only income and loss from passive activities are a $10,000 capital gain from passive activity X and a $12,000 ordinary loss from passive activity Y. The taxpayer also has a $10,000 capital loss that is not derived from a passive activity.
(ii) Under § 1.469-2T (b), the taxpayer has a $2,000 passive activity loss for the taxable year. The only effect of section 469 and the regulations thereunder is to disallow a deduction for the taxpayer's $2,000 passive activity loss for the taxable year. Thus, the taxpayer's capital loss for the taxable year is allowed because the $10,000 capital gain from passive activity X is taken into account under section 1211 (b) in computing the taxpayer's allowable capital loss for the year.
An individual has a $5,000 passive activity loss for a taxable year, all of which is disallowed under paragraph (a)(1) of this section. All of the disallowed loss is allocated under paragraph (f) of this section to activities that are trades or businesses (within the meaning of section 1402(c)). Such loss is not taken into account for the taxable year in computing the taxpayer's taxable income subject to tax under section 1. In addition, under this paragraph (d)(3), such loss is not taken into account for the taxable year in computing the taxpayer's net earnings from self-employment subject to tax under section 1401.
The taxpayer is engaged in an activity of leasing photocopying equipment. The average period of customer use for the equipment exceeds 30 days. Pursuant to the lease agreements, skilled technicians employed by the taxpayer maintain the equipment and service malfunctioning equipment for no additional charge. Service calls occur frequently (three times per week on average) and require substantial labor. The value of the maintenance and repair services (measured by the cost to the taxpayer of employees performing these services) exceeds 50 percent of the amount charged for the use of the equipment. Under these facts, services performed by individuals are provided in connection with the use of the photocopying equipment, but the customers' use of the photocopying equipment is not incidental to their receipt of the services. Therefore, extraordinary personal services (within the meaning of paragraph (e)(3)(v) of this section) are not provided in connection with making the photocopying equipment available for use by customers, and the activity is a rental activity.
The facts are the same as in Example 1, except that the average period of customer use for the photocopying equipment exceeds seven days but does not exceed 30 days. Under these facts, significant personal services (within the meaning of paragraph (e)(3)(iv) of this section) are provided in connection with making the photocopying equipment available for use by customers and, under paragraph (e)(3)(ii)(B) of this section, the activity is not a rental activity.
The taxpayer is engaged in an activity of transporting goods for customers. In conducting the activity, the taxpayer provides tractor-trailers to transport goods for customers pursuant to arrangements under which the tractor-trailers are selected by the taxpayer, may be replaced at the sole option of the taxpayer, and are operated and maintained by drivers and mechanics employed by the taxpayer. The average period of customer use for the tractor-trailers exceeds 30 days. Under these facts, the use of tractor-trailers by the taxpayer's customers is incidental to their receipt of personal services provided by the taxpayer. Accordingly, the services performed in the activity are extraordinary personal services (within the meaning of paragraph (e)(3)(v) of this section) and, under paragraph (e)(3)(ii)(C) of this section, the activity is not a rental activity.
The taxpayer is engaged in an activity of owning and operating a residential apartment hotel. For the taxable year, the average period of customer use for apartments exceeds seven days but does not exceed 30 days. In addition to cleaning public entrances, exists, stairways, and lobbies, and collecting and removing trash, the taxpayer provides a daily maid and linen service at no additional charge. All of the services other than maid and linen service are excluded services (within the meaning of paragraph (e)(3)(iv)(B) of this section), because such services are similar to those commonly provided in connection with long-term rentals of high-grade residential real property. The value of the maid and linen services (measured by the cost to the taxpayer of employees performing such services) is less than 10 percent of the amount charged to tenants for occupancy of apartments. Under these facts, neither significant personal services (within the meaning of paragraph (e)(3)(iv) of this section) nor extraordinary personal services (within the meaning of paragraph (e)(3)(v) of this section) are provided in connection with making apartments available for use by customers. Accordingly, the activity is a rental activity.
The taxpayer owns 1,000 acres of unimproved land with a fair market value of $350,000 and an unadjusted basis of $210,000. The taxpayer holds the land for the principal purpose of realizing gain from appreciation. In order to defray the cost of carrying the land, the taxpayer leases the land to a rancher, who uses the land to graze cattle and pays rent of $4,000 per year. Thus, the gross rental income from the land is less than two percent of the lesser of the fair market value and the unadjusted basis of the land (.02 × $210,000 = $4,200). Accordingly, under paragraph (e)(3)(ii)(D) of this section, the rental of the land is not a rental activity because the rental is treated under paragraph (e)(3)(vi)(B) of this section as incidental to an activity of holding the property for investment.
(i) A calendar year taxpayer owns an interest in a farming activity which is a trade or business activity (within the meaning of paragraph (e)(2) of this section) and owns farmland which was used in the farming activity in 1985 and 1986. The fair market value of the farmland is $350,000 and its unadjusted basis is $210,000. In 1987, 1988, and 1989, the taxpayer continues to own an interest in the farming activity but does not use the land in the activity. In 1987, the taxpayer leases the land for $4,000 to a rancher, who uses the land to graze cattle. In 1988, the taxpayer leases the land for $10,000 to a film production company, which uses the land to film scenes for a movie. In 1989, the taxpayer again leases the land for $4,000 to the rancher.
(ii) For 1987 and 1989, the taxpayer owns an interest in a trade or business activity, and the farmland which the taxpayer leases to the rancher was used in such activity for two out of the five immediately preceding taxable years. In addition, the gross rental income from the land ($4,000) is less than two percent of the lesser of the fair market value and the unadjusted basis of the land (.02 × $210,000 = $4,200). Accordingly, the taxpayer's rental of the land is treated under paragraph (e)(3)(vi)(C) of this section as incidental to the taxpayer's farming activity, and is not a rental activity.
(iii) Because the taxpayer's gross rental income from the land for 1988 ($10,000) is not less than two percent of the lesser of the fair market value and the unadjusted basis of the land, the requirement of paragraph (e)(3)(vi)(C)(3) of this section is not met. Therefore, the taxpayer's rental of the land in 1988 is not treated as incidental to the taxpayer's farming activity and is a rental activity.
(i) In 1988, the taxpayer acquires vacant land for the purpose of constructing a shopping mall. Before commencing construction, the taxpayer leases the land under a one-year lease to an automobile dealer, who uses the land to park cars held in its inventory. The taxpayer commences construction of the shopping mall in 1989.
(ii) The taxpayer acquired the land for the principal purpose of constructing the shopping mall, not for the principal purpose of realizing gain from the appreciation of the property. Therefore, the rental of the property in 1988 is not treated under paragraph (e)(3)(vi)(B) of this section as incidental to an activity of holding the property for investment.
(iii) The land has not been used in any taxable year in any trade or business of the taxpayer. Therefore, the rental of the property in 1988 is not treated under paragraph (e)(3)(vi)(C) of this section as incidental to a trade or business activity.
(iv) Since the rental of the land in 1988 is not treated under paragraph (e)(3)(vi) of this section as incidental to a nonrental activity of the taxpayer, the rental of the land in 1988 is a rental activity. See § 1.469-2T(f)(3) for a special rule relating to the treatment of gross income from the rental of nondepreciable property.
The taxpayer makes farmland available to a tenant farmer pursuant to an arrangement designated a “crop-share lease.” Under the arrangement, the tenant is required to use the tenant's best efforts to farm the land and produce marketable crops. The taxpayer is obligated to pay 50 percent of the costs incurred in the activity (without regard to whether any crops are successfully produced or marketed), and is entitled to 50 percent of the crops produced (or 50 percent of the proceeds from marketing the crops). For purposes of paragraph (e)(3)(vii) of this section, the taxpayer is treated as providing the farmland for use in a farming activity conducted by a joint venture in the taxpayer's capacity as an owner of an interest in the joint venture. Accordingly, under paragraph (e)(3)(ii)(F) of this section, the taxpayer is not engaged in a rental activity, without regard to whether the taxpayer performs any services in the farming activity.
The taxpayer owns a taxicab which the taxpayer operates during the day and leases to another driver for use at night under a one-year lease. Under the terms of the lease, the other driver is charged a fixed rental for use of the taxicab. Assume that, under the rules to be contained in § 1.469-4T, the taxpayer is engaged in two separate activities, an activity of operating the taxicab and an activity of making the taxicab available for use by the other driver. Under these facts, the period for which the other driver uses the taxicab exceeds 30 days, and the taxpayer does not provide extraordinary personal services in connection with making the taxicab available to the other driver. Accordingly, the lease of the taxicab is a rental activity.
The taxpayer operates a golf course. Some customers of the golf course pay green fees upon each use of the golf course, while other customers purchase weekly, monthly, or annual passes. The golf course is open to all customers from sunrise to sunset every day of the year except certain holidays and days on which the taxpayer determines that the course is too wet for play. The taxpayer thus makes the golf course available during prescribed hours for nonexclusive use by various customers. Accordingly, under paragraph (e)(3)(ii)(E) of this section, the taxpayer is not engaged in a rental activity, without regard to the average period of customer use for the golf course.
(i) A, a calendar year individual, acquires on January 1, 1987, a general partnership interest in P, a calendar year partnership that holds a working interest in an oil or gas property. Pursuant to the partnership agreement, A is entitled to convert the general partnership interest into a limited partnership interest at any time. On December 1, 1987, pursuant to a contract with D, an independent drilling contractor, P commences drilling a single well pursuant to the working interest. Under the drilling contract, P pays D for the drilling only as the work is performed. All drilling costs are deducted by P in the year in which they are paid. At the end of 1987, A converts the general partnership interest into a limited partnership interest, effective immediately. The drilling of the well is completed on February 28, 1988. A's interest in the well would but for this paragraph (e)(4) be an interest in a passive activity.
(ii) Throughout 1987, A holds the working interest through an entity that does not limit A's liability with respect to the drilling of the well pursuant to the working interest. In 1988, however, A holds the working interest through an entity that limits A's liability with respect to the drilling and operation of the well throughout such year. Accordingly, under paragraph (e)(4)(i) of this section, A's interest in P's well is not an interest in a passive activity for 1987 but is an interest in a passive activity for 1988. Moreover, since economic performance occurs in 1987 with respect to all items of deduction for drilling costs that are allocable to 1987, A has no disqualified deductions for 1987.
The facts are the same as in Example 1, except that all costs of drilling under the contract with D (including costs of drilling performed after 1987) are paid before the end of 1987 and A has a net loss for 1987. In addition, A has $15,000 of total deductions that are attributable to the well and allocable to 1987, but economic performance (as that term is used in paragraph (e)(4)(ii)(C)(2)(ii) of this section) does not occur with respect to $5,000 of those deductions until 1988. Under paragraph (e)(4)(ii) of this section, the $5,000 of deductions with respect to which economic performance occurs in 1988 are disqualified deductions and are treated as passive activity deductions for 1987. In addition, one-third ($5,000/$15,000) of A's gross income from the well for 1987 is treated as passive activity gross income.
A owns a 20 percent interest as a general partner in the capital and profits of P, a partnership which owns oil or gas working interests. The other partners of P agree to indemnify A against liability in excess of A's capital contribution for any of P's costs and expenses with respect to P's working interests. As a general partner, however, A is jointly and severally liable for all of P's liabilities and, under paragraph (e)(4)(v)(B)(1) of this section, the indemnification agreement is not taken into account in determining whether A holds the working interests through an entity that limits A's liability. Accordingly, the partnership does not limit A's liability with respect to the drilling or operation of wells pursuant to the working interests.
B owns a 10 percent interest in X, an entity (other than a limited partnership or corporation) created under applicable State law to hold working interests in oil or gas properties. Under applicable State law, B is liable without limitation for 10 percent of X's costs and expenses with respect to X's working interests but is not liable for the remaining 90 percent of such costs and expenses. Since B's liability for the obligations of X is not limited to a determinable fixed amount (within the meaning of paragraph (e)(4)(v)(A)(3) of this section), the entity does not limit B's liability with respect to the drilling or operation of wells pursuant to the working interests.
C is both a general partner and a limited partner in a partnership that owns a working interest in oil or gas property. Because C owns an interest as a general partner in each well drilled pursuant to the working interest, C's entire interest in each well drilled pursuant to the working interest is treated under paragraph (e)(4)(i) of this section as an interest in an activity that is not a passive activity (without regard to whether C materially participates in such activity).
A partnership is a trader of stocks, bonds, and other securities (within the meaning of section 1236(c)). The capital employed by the partnership in the trading activity consists of amounts contributed by the partners in exchange for their partnership interests, and funds borrowed by the partnership. The partnership derives gross income from the activity in the form of interest, dividends, and capital gains. Under these facts, the partnership is treated as conducting an activity of trading personal property for the account of its partners. Accordingly, under this paragraph (e)(6), the activity is not a passive activity.
An individual holds interests in three passive activities, A, B, and C. The gross income and deductions from these activities for the taxable year are as follows:
| A | B | C | Total | |
|---|---|---|---|---|
| Gross income | $7,000 | $4,000 | $12,000 | $23,000 |
| Deductions | (16,000) | (20,000) | (8,000) | (44,000) |
| Net income (loss) | ($9,000) | ($16,000) | $4,000 | ($21,000) |
The taxpayer's $21,000 passive activity loss for the taxable year is disallowed under paragraph (a)(1)(i) of this section. Therefore, a ratable portion of the losses from activities A and B is disallowed. The disallowed portion of each loss is determined as follows:
| A: $21,000 × $9,000/$25,000 | $7,560 |
| B: $21,000 × $16,000/$25,000 | $13,440 |
| Total | $21,000 |
An individual holds interests in four passive activities, A, B, C, and D. The results of operations of these activities for the taxable year are as follows:
| A | B | C | D | Total | |
|---|---|---|---|---|---|
| Gross income | 15,000 | 5,000 | 10,000 | 10,000 | 40,000 |
| Deductions | (5,000) | (10,000) | (20,000) | (8,000) | (43,000) |
| Net income (loss) | 10,000 | (5,000) | (10,000) | 2,000 | (3,000) |
Activities A and B are significant participation passive activities (within the meaning of § 1.469-2T(f)(2)(ii)). The gross income from these activities for the taxable year ($20,000) exceeds the passive activity deductions from those activities for the taxable year ($15,000) by $5,000 and, under § 1.469-2T(f)(2), $5,000 of gross income from those activities is treated as not from a passive activity. Therefore, solely for purposes of applying this paragraph (f)(2)(i) for the taxable year, activities A and B are treated as a single activity that does not have a loss for the taxable year. Under § 1.469-2T(b), the taxpayer's passive activity loss for the taxable year is $8,000 ($43,000 of passive activity deductions minus $35,000 of passive activity gross income). The results of treating activities A and B as a single activity that does not have a loss for the taxable year is that none of the $8,000 passive activity loss is allocated under this paragraph (f)(2)(i) to activity B for the taxable year, even though the taxpayer incurred a loss in that activity for the taxable year.
(i) For 1987, X, a closely held corporation, is engaged in two activities, a trade or business activity in which X materially participates for 1987 and a rental activity. X also holds portfolio investments. For 1987, X has the following gross income and deductions:
| Gross income: | |
| Rents | $60,000 |
| Gross income from business | 100,000 |
| Portfolio income | 35,000 |
| Total | $195,000 |
| Deductions: | |
| Rental deductions | ($100,000) |
| Business deductions (80,000) | |
| Interest expense allocable to portfolio expenditures under § 1.163-8T | (10,000) |
| Deductions (other than interest expense) clearly and directly allocable to portfolio income | (5,000) |
| Total | ($195,000) |
(ii) The corporation's net active income for 1987 is $20,000, computed as follows:
| Gross income | $195,000 | ||
| Amounts not taken into account in computing net active income: | |||
| Rents (see paragraph (g)(4)(ii)(A) of this section) | $60,000 | ||
| Portfolio income (see paragraph (g)(4)(ii)(C) of this section) | $35,000 | ||
| $95,000 | ($95,000) | ||
| Gross income taken into account in computing net active income | $100,000 | $100,000 | |
| Deductions | ($195,000) | ||
| Amounts not taken into account in computing net active income: | |||
| Rental deductions (see paragraph (g)(4)(ii)(B) of this section) | ($100,000) | ||
| Interest expense allocated to portfolio expenditures (see paragraph (g)(4)(ii)(G) of this section) | ($10,000) | ||
| Other deductions clearly and directly allocable to portfolio income (see paragraph (g)(4)(ii)(F) of this section) | ($5,000) | ||
| ($115,000) | $115,000 | ||
| Deductions taken into account in computing net active income | ($80,000) | ($80,000) | |
| Net active income | $20,000 |
(iii) Under paragraph (g)(4)(i) of this section, X's passive activity loss for 1987 is $20,000, the amount by which the passive activity deductions for the taxable year ($100,000) exceed the sum of (a) the passive activity gross income for the taxable year ($60,000) and (b) the net active income for the taxable year ($20,000). Under paragraph (f)(4) of this section, the $20,000 of deductions from X's rental activity that are disallowed for 1987 are treated as deductions from the rental activity for 1988. If computed without regard to the net active income for the taxable year, X's passive activity loss would be $40,000 ($100,000 of rental deductions minus $60,000 of rental income). Thus, the effect of the rule in paragraph (g)(4)(i) of this section is to reduce the corporation's passive activity loss for the taxable year by the amount of the corporation's net active income for such year.
(iv) Under these facts, X's taxable income for 1987 is $20,000, computed as follows:
| Gross income | $195,000 | |
| Deductions: | ||
| Total deductions | ($195,000) | |
| Passive activity loss | $20,000 | |
| Allowable deductions | ($175,000) | ($175,000) |
| Taxable income | $20,000 |
(i) The facts are the same as in Example 1, except that, in 1988, X has a loss from the trade or business activity, and a net operating loss (“NOL”) of $15,000 that is carried back under section 172(b) to 1987. Since NOL carrybacks are taken into account in computing net active income, X's net active income for 1987 must be recomputed as follows:
| Net active income before NOL carryback | $20,000 |
| NOL carryback | ($15,000) |
| Net active income | $5,000 |
(ii) Under these facts, X's disallowed passive activity loss for 1987 is $35,000, the amount by which the passive activity deductions for the taxable year ($100,000) exceed the sum of (a) the passive activity gross income for the taxable year ($60,000) and (b) the net active income for the taxable year ($5,000).
(iii) Under paragraph (f)(4) of this section, the $35,000 of deductions from X's rental activity that are disallowed for 1987 are treated as deductions from the rental activity for 1988. X's taxable income for 1987 is $20,000, computed as follows:
| Gross income | $195,000 | |
| Deductions: | ||
| Total deductions | ($210,000) | |
| Passive activity loss | $35,000 | |
| Allowable deductions | ($175,000) | ($175,000) |
| Taxable income | $20,000 |
Thus, taking the NOL carryback into account in computing net active income for 1987 does not affect X's taxable income for 1987, but increases the deductions treated under paragraph (f)(4) as deductions from X's rental activity for 1988 and decreases X's NOL carryover to years other than 1987.
then the passive activity deductions and credits allocable to such individual's activities for the taxable year under paragraph (f)(4) of this section shall be determined by taking into account the items of deduction and credit attributable to such individual's interests in passive activities for the immediately preceding taxable year. See paragraph (j)(2)(i) of this section.
[T.D. 8175, 53 FR 5700, Feb. 25, 1988, as amended by T.D. 8253, 54 FR 20535, May 12, 1989; T.D. 8319, 55 FR 49038, Nov. 26, 1990; T.D. 8417, 57 FR 20753, May 15, 1992; 58 FR 29536, May 21, 1993; 58 FR 45059, Aug. 26, 1993; 59 FR 17478, Apr. 13, 1994; T.D. 8560, 59 FR 41674, Aug. 15, 1994; T.D. 8597, 60 FR 36685, July 18, 1995; T.D. 8996, 67 FR 35012, May 17, 2002]
Terms defined here
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Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 469 Passive activity losses and credits limited
- § 671 Trust income, deductions, and credits attributable to grantors and others as substantial owners
- § 1211 Limitation on capital losses
- § 613A Limitations on percentage depletion in case of oil and gas wells
- § 1402 Definitions
- § 707 Transactions between partner and partnership
- § 461 General rule for taxable year of deduction
- § 1092 Straddles
- § 1236 Dealers in securities
- § 1366 Pass-thru of items to shareholders
- § 1231 Property used in the trade or business and involuntary conversions
- § 26 Limitation based on tax liability; definition of tax liability
- § 542 Definition of personal holding company
- § 465 Deductions limited to amount at risk
- § 172 Net operating loss deduction
- § 704 Partner’s distributive share
Regulations it cites
- § 1.469-2T Passive activity loss (temporary).
- § 1.469-3T Passive activity credit (temporary).
- § 1.469-5T Material participation (temporary).
- § 1.469-4T Definition of activity (temporary).
- § 1.469-1 General rules.
- § 1.469-2 Passive activity loss.
- § 1.702-1 Income and credits of partner.
- § 1.441-3 Taxable year of a personal service corporation.
- § 1.163-8T Allocation of interest expense among expenditures (temporary).
- § 1.1502-19 Excess loss accounts.
Cited by 15 other regulations
- § 1.163(j)-3 Relationship of the section 163(j) limitation to other provisions affecting interest.
- § 1.163(j)-6 Application of the section 163(j) limitation to partnerships and subchapter S corporations.
- § 1.469-0 Table of contents.
- § 1.469-1 General rules.
- § 1.469-2 Passive activity loss.
- § 1.469-2T Passive activity loss (temporary).
- § 1.469-3T Passive activity credit (temporary).
- § 1.469-4 Definition of activity.
- § 1.469-4T Definition of activity (temporary).
- § 1.469-5T Material participation (temporary).
- § 1.469-7 Treatment of self-charged items of interest income and deduction.
- § 1.469-9 Rules for certain rental real estate activities.
- § 1.469-11 Applicability date and transition rules.
- § 1.1411-4 Definition of net investment income.
- § 1.1411-5 Trades or businesses to which tax applies.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 8996 (67 FR 35012)
- Amended by T.D. 8597 (60 FR 36685)
- Amended by T.D. 8560 (59 FR 41674)
- Amended (59 FR 17478)
- Amended (58 FR 45059)
- Amended (58 FR 29536)
- Amended by T.D. 8417 (57 FR 20753)
- Amended by T.D. 8319 (55 FR 49038)
- Amended by T.D. 8253 (54 FR 20535)
- Issued by T.D. 8175 (53 FR 5700)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Taxable year for which deductions taken
Nearby sections
- § 1.468B-7 Pre-closing escrows.
- § 1.468B-9 Disputed ownership funds.
- § 1.469-0 Table of contents.
- § 1.469-1 General rules.
- § 1.469-1T General rules (temporary).
- § 1.469-2 Passive activity loss.
- § 1.469-2T Passive activity loss (temporary).
- § 1.469-3 Passive activity credit.
- § 1.469-3T Passive activity credit (temporary).