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significantly increased costs as a result of the
business activity, and that the provision should be
interpreted to carry out its objectives.
* * * * * * *
Explanation of Provision
* * * * * * *
Limitations on deduction
In general.–-The bill limits the amount of a home
office deduction (other than expenses that are
deductible without regard to business use, such as home
mortgage interest) to the taxpayer’s gross income from
the activity, reduced by all other deductible expenses
attributable to the activity but not allocable to the
use of the unit itself. Thus, home office deductions
are not allowed to the extent that they create or
increase a net loss from the business activity to which
they relate. [H. Rept. 99-426, at 133-135 (1985), 1986-
3 C.B. (Vol. 2) 133-135).]
Finally, for petitioners’ benefit, we observe that to the
extent deductions are disallowed under section 280A(c)(5), they
may be carried forward to the succeeding taxable year. See sec.
280A(c)(5), flush language.
In view of the foregoing, we hold that petitioners’
deductions for the business use of their apartment are subject to
the limitation set forth in section 280A(c)(5). Accordingly, we
sustain respondent’s determination in this regard.
B. Election To Expense Certain Costs Under Section 179
Section 179(a) permits a taxpayer to:
elect to treat the cost of any section 179 property as
an expense which is not chargeable to capital account.
Any cost so treated shall be allowed as a deduction for
the taxable year in which the section 179 property is
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