5. John Young is the lead partner in a local accounting firm whose practice consists of tax consulting and compliance. The firm also serves clients by providing write-up and payroll processing services. As his firm has grown, John has developed various ways to build its business prospects.

John and his wife, Jena, created JJ Partnership to purchase an office building where John moved his practice. Because the building is larger than the practice currently needs, space is rented to other tax practitioners. In addition to providing office space, the partnership offers professional and administrative services on an exclusive basis to the tenants. These services include secretarial support, telephone answering service, tax professionals available for special projects, access to an online tax research library, computer hardware technology, and miscellaneous administrative support. JJ Partnership considers its primary activity to be providing professional and administrative services to its tenants rather than being a lessor. Because of the attractiveness of the services offered to its tenants, the building is fully leased. In the first year, Jena works full-time at the partnership, and John commits about 550 hours to its affairs. For the first year, the partnership incurs a tax loss of $60,000.

Without considering the impact of the loss, John and Jenas AGI is $175,000. What advice would you provide on the deductibility of the $60,000 loss for federal income tax purposes?