Joseph A. Morcos and Joann M. Morcos - Page 8

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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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