- 14 -
Petitioners contend that their personal residence is a
parsonage and that the parsonage allowance under section 107
allows them to deduct the mortgage interest on their Schedule C
as a business expense. Petitioners' reliance on section 107 is
misplaced. On its face, section 107 provides for an exclusion
for the rental value of a parsonage furnished to a minister and
does not address the deductibility of mortgage interest. It
provides no guidance in determining whether the interest is
deductible on Schedule A or Schedule C.
As mentioned above, mortgage interest expense is not
disallowed by section 280A and may be deducted as an itemized
deduction under section 163. See sec. 280A(b). Further, if any
part of the interest is an ordinary and necessary business
expense within the meaning of section 162, it may be deducted
from gross income. See sec. 62(a)(1). Otherwise, at least as
relevant herein, mortgage interest may only be deducted from
adjusted gross income as an itemized deduction on Schedule A.
Petitioners testified that they used the house both as a
residence and as an office for petitioners' counseling business
for the taxable years 1988 through 1990. Petitioners also
testified that approximately 20 percent of their home was used as
an office in the home. We find petitioners' testimony to be
credible and supported by the record. Thus, we hold that 20
percent of the mortgage interest paid by petitioners was incurred
as an ordinary and necessary expense in carrying on a trade or
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011