- 10 - To be deductible as a trade or business expenses under section 162(a), the expense must be ordinary and necessary. See Commissioner v. Tellier, 383 U.S. 687, 689 (1966); Deputy v. du Pont, 308 U.S. 488, 495 (1940). Both petitioners testified at trial. Petitioners’ return preparer was present at trial and was allowed to sit at counsel table to assist petitioners in the presentation of their case; she was not called as a witness. Although questioned on the points, petitioners failed to establish that the following deductions were ordinary and necessary to the operation of their horse racing activity: Custom hire--$1,600; insurance--$817.92; interest (other)-- $1,494.67; repairs--$2,274.82; and taxes--$1,892. Consequently, petitioners are not entitled to deductions for those items. Petitioners’ horse racing activity was conducted at their farm, which was also their residence. Deductions attributable to the use of a taxpayer’s residence in the taxpayer’s trade or business are limited by the amount of gross income derived from such use. See sec. 280A(c)(5). As best as can be determined from the record, the mortgage interest deduction of $1,665.96 claimed on the Schedule F relates to the mortgage on petitioners’ residence. Some or all of the amount might be allowable as an itemized deduction. See section 163. (Petitioners did not elect to itemize deductions on their 1994 return.) Nevertheless, because of the amount of gross income earned by petitioners inPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011