Barry D. and Suzanne B. Whalley - Page 23

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          the home office did not meet the requirements of section 280A,              
          and that petitioners failed to establish the percentage of                  
          business use for the assets.                                                
               Section 280A(a) provides, as a general rule, that an                   
          individual taxpayer is precluded from deducting expenses incurred           
          in connection with the business use of a dwelling unit that is              
          used by the taxpayer during the year as a residence.  The general           
          disallowance rule does not prevent a taxpayer from taking any               
          deduction that would otherwise be allowable without regard to the           
          use of the home for business.9  Sec. 280A(b).                               
               Subject to the income limitation on deductions under                   
          section 280A(c)(5), a business-use exception from the general               
          disallowance rule is carved out where a taxpayer can meet certain           
          statutory tests prescribed by section 280A(c)(1).  Section                  
          280A(c)(1) permits a taxpayer to deduct expenses allocable to a             
          home office which is exclusively used on a regular basis for one            
          or more of the following three purposes:  (1) As the taxpayer's             
          principal place of business, (2) as the place where the taxpayer            
          meets with customers, clients, or patients in the normal course             
          of business, and (3) in the case of an unattached separate                  
          structure, in connection with the taxpayer's business.  Sec.                
          280A(c)(1); Commissioner v. Soliman, 506 U.S. 168 (1993); Cao v.            

          9    Under sec. 280A(b), deductions which are otherwise allowable           
          without regard to any connection with a trade or business include           
          the deduction for: (1) Interest under sec. 163, subject to the              
          sec. 163(h)(1) personal interest restriction, (2) real estate               
          taxes under sec. 164, and (3) casualty losses under sec. 165.               



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