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After concessions,1 the issues for decision are: (1) Whether the
deductions petitioners claimed on their 1996 and 1997 Federal
income tax returns with respect to the rental of rooms in their
personal residence are subject to the limitation imposed by
section 280A(c)(5); and (2) whether petitioners properly
calculated depreciation expenses with respect to their rental
activity.
Background
The stipulation of facts and the accompanying exhibits are
incorporated herein by reference. Petitioners resided in Wayne,
Pennsylvania, at the time their petition was filed with the
Court.
In 1983 petitioners paid $125,000 for a 1-acre property in
Radnor Township, Pennsylvania. The property includes the
following improvements: a three-story, 4500 square foot
Victorian style house (main house); a two-story, 1200 square foot
carriage house (carriage house); landscaped grounds; a swimming
pool; and a pool house with shower facilities and a full kitchen.
1 Petitioners concede respondent’s adjustment to their
Schedule C, Profit or Loss From Business, depreciation.
Respondent concedes that petitioners are entitled to Schedule C
deductions for entertainment and travel expenses and that
petitioners are entitled to deduct $5,231 of legal expenses
incurred in connection with their residential rental activity.
The adjustments to itemized deductions in the notice of
deficiency are computational adjustments which will be affected
by the outcome of the other issues to be decided.
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Last modified: May 25, 2011