Investors dealt tax blow over depreciation deduction

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Ulysses Lee was a full-time IRS tax examiner. His brother, Kai, worked as a full-time professor of radiology. Together, they are partners in Lee Brothers Investments, which owns a rental house, a five-unit apartment building and another small apartment building. Each investor also owns several rental properties individually. On their income tax returns, the brothers claimed passive activity tax loss deductions, mostly from depreciation of their properties, against their substantial ordinary income from their full-time jobs. Purchase Bob Bruss reports online. Upon audit by the IRS, using Internal Revenue Code 469(c)(7)(B), they claimed each brother performed more than 750 hours of real estate professional services annually (about 14 hours per week) and more than one-half of their personal services are performed operating their properties. On their income tax returns, the brothers depreciated their properties on a 10-year depreciation basis, rather than the 27.5 years required by IRS...