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If a taxpayer uses a dwelling unit for rental purposes and
as a residence during the taxable year, section 280A(c)(5) limits
the deductions attributable to the rental use of the dwelling
unit to an amount not to exceed the excess of the gross rental
income derived from the rental use over the sum of: (1) The
deductions allocable to the rental use that are otherwise
allowable regardless of such rental use (such as mortgage
interest and real estate taxes); plus (2) any deductions that are
allocable to the rental activity in which the rental use of the
residence occurs, but that are not allocable to the rental use of
the residence itself. As a result, a taxpayer cannot normally
offset against unrelated income a net rental loss incurred from,
and attributable to, the rental use of the taxpayer's residence.
Feldman v. Commissioner, 84 T.C. 1, 5 (1985), affd. 791 F.2d 781
(9th Cir. 1986).
If during a taxable year a taxpayer converts his principal
residence to rental property or vice versa, section 280A(d)(4)
must be taken into account in order to determine whether, and to
what extent, section 280A(c)(5) applies. Section 280A(d)(4)
provides:
(A) In general.--For purposes of applying
subsection (c)(5) to deductions allocable to a
qualified rental period, a taxpayer shall not be
considered to have used a dwelling unit for personal
purposes for any day during the taxable year which
occurs before or after a qualified rental period
described in subparagraph (B)(i), or before a qualified
rental period described in subparagraph (B)(ii), if
with respect to such day such unit constitutes the
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Last modified: May 25, 2011