Astrida Terauds - Page 9

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          notice of deficiency, respondent allowed petitioner a $775 loss             
          from her rental activity for 1986.                                          
               During 1986, petitioner owned what she described as a "two-            
          family" house.  She lived in one portion of the house and rented            
          the other portion.  On her 1986 Federal income tax return,                  
          petitioner did not report either the rental income or the                   
          expenses incurred in connection with the rental portion of her              
          house.  She testified that, because her expenses were more or               
          less equal to or in excess of her rental income, she chose not to           
          report the activity.  In the course of the audit of her returns             
          for 1986 and 1987, petitioner made known the activity to                    
          respondent's auditing agent, and a determination was made with              
          respect to the activity for 1986.7  In the notice of deficiency,            
          the net loss of $775 allowed by respondent was determined as                

          Rental income                                   $3,136.00                   
          Expenses (for entire house)                                                 
          Mortgage interest                     $2,087.01                             
          Real estate taxes                      3,934.21                             
          Insurance                                300.00                             
          Utilities                              1,500.00                             
          Total                                  $7,821.22                            
          Attributable to rented portion (�)               3,910.61                   
          (Loss)                                         ($  774.61)                  

               The rental activity issue is only for the year 1986.                   
          Petitioner did not report a rental activity on her 1987 return,             
          and no mention was made at trial of such an activity during 1987.           
          The Court presumes that petitioner did not conduct such an                  
          activity during 1987.                                                       

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