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the carriage house. Respondent also allowed petitioners to
capitalize for depreciation the $70,000 they spent for
renovations to the carriage house.
As an additional argument to support the adjustments,
respondent argued at trial that the deductions attributable to
petitioner’s rental of the third floor units are limited to their
gross rental income from the units minus certain deductions.
Discussion
The first issue considered is whether section 280A(c)(5)
limits petitioners’ deductions for the rental of the third floor
units. Section 280A(a) provides the general rule that no
deduction is allowable “with respect to the use of a dwelling
unit which is used by the taxpayer during the taxable year as a
residence.” The term “dwelling unit includes a house, apartment,
condominium, mobile home, boat, or similar property, and all
structures or other property appurtenant to such dwelling unit.”
Sec. 280A(f)(1)(A). The term “dwelling unit” does not include
that portion of a unit which is used exclusively as a hotel,
motel, inn, or similar establishment. Sec. 280A(f)(1)(B).
Section 280A(c) lists exceptions to the general rule of
section 280A(a). The only exception relevant herein is that
provided by section 280A(c)(3) which states that “Subsection (a)
shall not apply to any item which is attributable to the rental
of the dwelling unit or portion thereof (determined after the
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