Lucila Novoa - Page 6

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          correct the overstatement of expenses of the rental portion, she            
          divided the loss by one-half and reported a loss of $8,400                  
          instead of $16,800.  Petitioner has acknowledged in the                     
          stipulation of facts that her procedure of dividing the loss in             
          half results in a computational error that overstates her loss by           
          $2,800, because it also has the effect of improperly reducing her           
          gross rental income by one-half.                                            
               In adjusting petitioner's Schedule E rent income, respondent           
          disallowed some expenses while allowing others in excess of the             
          amounts stated on the return.  Respondent adjusted petitioner's             
          rent income as follows:                                                     
          Expense Item        Expense Per Return            Allowed                   
          Insurance                $996                     $499                      
          Repairs                  4,000                         0                    
          Supplies                 3,407                         0                    
          Taxes                    2,128                    3,795                     
          Gas                      1,113                         0                    
          Depreciation              3,588                       4,206                 
                                  15,232                   8,500                     
                         Total disallowed expenses          6,732                     
                         50 percent business allocation         x .50                 
                         Schedule E expense disallowance      3,366                   
                         Schedule E computational error         2,800                 
                         Schedule E adjustment in the       6,166                     
                         notice of deficiency                                         

          C.   Petitioner's Daughters                                                 
               Petitioner has two daughters, Emelina and Jennifer, who in             
          1993 were 25 and 18 years old, respectively.  Emelina and                   




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