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through July during that year, petitioners rented the house to
three students for a total of 210 days.
On Schedule E of their original return, petitioners reported
rental income in the amount of $5,700 and claimed expenses for
cleaning and maintenance in the amount of $318. On Schedule E of
their amended return, petitioners claimed additional expenses for
depreciation in the amount of $2,824, resulting in net rental
income reported in the amount of $2,558. On Schedule A of their
original and amended returns, petitioners claimed expenses
attributable to the house for real estate property taxes in the
amount of $2,686 and mortgage interest in the amount of $16,565.
Upon examination, respondent determined that petitioners'
rental of their home did not constitute an activity engaged in
for profit. Accordingly, respondent disallowed the claimed
expenses and asserted that the income should have been reported
as "other income" on Form 1040, rather than on Schedule E. The
notice of deficiency made no adjustment or reclassification with
respect to the mortgage interest and property taxes allocable to
the rental use of the dwelling. Petitioners concede that they
are not entitled to the claimed expenses for maintenance and
depreciation. Petitioners now maintain that the rental income is
reportable on Schedule E and may be offset by claiming $5,700 of
the mortgage interest expense on Schedule E, rather than on
Schedule A.
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