Guido Ruggiero and Kristin Ruggiero - Page 12

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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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