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business. Accordingly, the portion of the mortgage interest
attributable to petitioners' counseling business is deductible
from petitioner's gross income. Secs. 62(a)(1); 162; 280A(b).
See Stewart v. Commissioner, T.C. Memo. 1987-436 (where taxpayer
rented out a bedroom in her residence, a deduction from gross
income was allowed for mortgage interest and real estate taxes
attributable to the rented portion of her residence).
However, petitioners failed to prove that the remaining
portion of the mortgage interest is allocable to a business use
of their residence. Petitioners admit that they used the
remaining 80 percent of the house as a personal residence. Thus,
the remaining 80 percent of the mortgage interest is a personal
expense that is deductible under section 163. Petitioners,
therefore, must deduct 80 percent of the mortgage interest as an
itemized deduction on Schedule A.5
Accordingly, we sustain respondent's determination only in
part with regard to the mortgage interest issue.
Rent Expense for 1988
5 Petitioners claimed the standard deduction for each of the
taxable years in issue. However, because the Court has only
partially sustained respondent's determination with respect to
the mortgage interest expense, petitioners' itemized deductions
may exceed the standard deduction. In addition, we note that
although petitioners contend, on brief, that they are entitled to
medical expenses in the amount of $3,422, for 1990, they failed
to introduce any persuasive evidence that they are entitled to a
larger deduction than the amount allowed by respondent. It is in
this context that we leave the parties to resolve this matter as
part of their Rule 155 computation.
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