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The committee amendment also provides an overall
limitation on the amount of deductions that a taxpayer may
take for the business use of the home or separate unattached
structure. The allowable deductions attributable to the use
of a residence or separate unattached structure for trade or
business purposes may not exceed the amount of the gross
income derived from the use of the residence or separate
unattached structure for that trade or business reduced by
the deductions which are allowed without regard to their
connection with the taxpayer's trade or business (e.g.,
interest and taxes).
The applicable rules are set forth in section 280A(c)(1) and (5).
(We note that to the extent deductions are disallowed under these
rules, they may be carried forward to the succeeding taxable
years subject to certain limitations. Sec. 280A(c)(5).)
If a separate studio adjacent to an artist's residence is
subject to the section 280A(c)(5) overall limitation, it follows
that a studio attached to an artist's residence likewise would be
subject to the overall limitation.
California Law permitted the conversion of the Tenth Street
premises into joint living and work quarters. The second floor
became petitioner's dwelling unit. Petitioner herself referred
to her premises as a live/work unit. Petitioner used her
dwelling unit as a residence. Because that dwelling unit/
residence was on the second floor, the deductions for her
business use of the first floor became subject to section 280A
and the overall limitation of section 280A(c)(5). This case
cannot be distinguished from the opinions of this Court in
Cunningham v. Commissioner, T.C. Memo. 1996-141, affd. per curiam
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