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Amounts for homeowners' dues, insurance, repairs, and
depreciation are amounts allocable to both of petitioners'
activities. Since petitioners rented or personally used the
property for about 1 month each year and held the property for
investment the rest of the year, 11/12 of the above amounts are
allocable to petitioners' investment activity. All other
amounts, including auto and travel (to clean after rentals),
cleaning and maintenance, supplies, utilities, "amortization",
and amounts for furnishings, are allocable solely to petitioners'
not-for-profit rental and personal activity.
Section 183(b)(1) permits a deduction for expenses that are
otherwise deductible without regard to whether the activity is
engaged in for profit, such as mortgage interest and personal
property taxes. Section 183(b)(2) permits a deduction for
expenses that would be deductible only if the activity were
engaged in for profit, but only to the extent that the gross
income derived from the activity exceeds the deductions allowed
by section 183(b)(1). Because petitioners' gross income derived
from the rental activity does not exceed the section 183(b)(1)
expenses, section 183(b)(2) does not permit a deduction for
expenses that would be deductible only if the rental activity
were engaged in for profit. Items that are allocable to
petitioners' personal use are also not deductible. Sec. 262.
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