Michael H. Visin and Natalie Marselly - Page 10

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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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