allocation_rental_expenses

allocation_rental_expenses - Rental property: Allocation of...

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Rental property: Allocation of mortgage interest and property taxes From the Internal Revenue Code : 280A(e) EXPENSES ATTRIBUTABLE TO RENTAL.-- 280A(e)(1) IN GENERAL.--In any case where a taxpayer who is an individual or an S corporation uses a dwelling unit for personal purposes on any day during the taxable year (whether or not he is treated under this section as using such unit as a residence), the amount deductible under this chapter with respect to expenses attributable to the rental of the unit (or portion thereof) for the taxable year shall not exceed an amount which bears the same relationship to such expenses as the number of days during each year that the unit (or portion thereof) is rented at a fair rental bears to the total number of days during such year that the unit (or portion thereof) is used. 280A(e)(2) EXCEPTION FOR DEDUCTIONS OTHERWISE ALLOWABLE.--This subsection shall not apply with respect to deductions which would be allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was rented. From CCH's annotation Allocation of otherwise allowable deductions. The IRS allows rent-related deductions based on the ratio of annual rental days to total days of use (personal and rental). However, the Tax Court, upheld by the Ninth (D.D. Bolton, 82-2 USTC ¶9699 ,¶14,854.58 ) and Tenth (E.G. McKinney, 83-2 USTC ¶9655 , ¶14,854.58 ) Circuits, disagrees with the IRS (Prop. Reg. §1.280A-3(c)(1) ) on the allocation of mortgage interest and taxes. In the Tax Court formula, the rental-use portion of property taxes and mortgage interest is found by dividing annual rental-use days by 365. Thus, the Tax Court's allocation method gives taxpayers with vacation homes primarily used as residences the advantage. This method allows more operating and basis-adjustment expenses to be used currently, while increasing the personal-use portion of mortgage interest and taxes, which are usually fully deductible on Schedule A. From the Bolton case
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This note was uploaded on 09/09/2011 for the course TAX 6845 taught by Professor Kelliher,c during the Fall '08 term at University of Central Florida.

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allocation_rental_expenses - Rental property: Allocation of...

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