In 2010, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse properly classifies its activities as passive. In 2010, 2011, and 2012, the corporation generated net passive losses of ($380,000), ($145,000), and ($194,000), respectively, all of which were properly suspended.
Effective January 2013, Treehouse elected to be taxed as an S corporation. Also during 2013, Treehouse sold two pieces of rental real estate property. The suspended losses related to these properties were ($63,000) and ($112,000).
Write a memo to Treehouse Rentals explaining the tax treatment of the disposition of the rental properties in 2013.
• Sec. 469, Sec. 1371
• TAM 9628002
• St. Charles Investment Co. v. Comm., 86 AFTR 2d 2000-6882 (CA 10, 11/14/2000)