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application of subsection (e)).” Subsection (e) requires a
taxpayer who uses the dwelling unit for personal purposes during
the taxable year, as a residence or otherwise, to limit his
deductions. In petitioners’ case this limitation does not affect
their deductions because the dwelling unit was rented for 100
percent of the time it was used. See Dinsmore v. Commissioner,
T.C. Memo. 1994-134, affd. in part and remanded on other issues
78 F.3d 592 (9th Cir. 1996).
Section 280A(c)(5), however, limits the deduction of
expenses incurred in the rental use of a residence that may be
allowed under section 280A(c)(3) to an amount not in excess of
the gross income derived from the rental use for the taxable year
over the sum of: (1) The deductions allocable to the rental use
that are otherwise allowable regardless of such rental use (such
as mortgage interest and real estate taxes); plus (2) any
deductions that are allocable to the rental activity in which the
rental use of the residence occurs, but that are not allocable to
the rental use of the residence itself. Thus, a taxpayer may not
normally offset against unrelated income a net rental loss
incurred from, and attributable to, the rental use of the
taxpayer’s residence. Feldman v. Commissioner, 84 T.C. 1, 5
(1985), affd. 791 F.2d 781 (9th Cir. 1986).
Petitioners contend that their rental of the third floor
units is not subject to the limitation of section 280A(c)(5).
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