Rev. Rul. 56-417

A taxpayer owned a number of houses which he held for rental purposes. From them he received gross rents of $5,000 each year and realized net yearly rents of $2,000. He personally performed certain services in connection with the repair and upkeep of the property which were a material factor in the production of the rental income. Held, the income from the rental property constitutes income from a business in which both personal services and capital are material income-producing factors and, under the provisions of sections 37(g) and 911(b) of the Internal Revenue Code of 1954, an amount not in excess of 30 percent of the net profits of the business ( i.e. net rents) constitutes earned income for the purposes of section 37(d)(2) of the Code. See Rev. Rul. 56-416, page 15.