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supra. Accordingly, we sustain respondent’s determination
disallowing a deduction for the value of the contract for deed.9
B. Bed And Breakfast Expenses
We must next determine whether petitioners are entitled to
deduct expenses related to operating a B&B on the first floor of
their home. Generally, taxpayers are restricted from deducting
expenses of their residences, or more specifically, expenses
related to a “dwelling unit” that taxpayers use as a personal
residence.10 Sec. 280A(d)(1).
Petitioners admit that they used their dwelling unit, at
least in part, as a personal residence. Unless an exception
applies, therefore, petitioners may not deduct expenses of their
residence. Respondent argues, and we agree, that petitioners
failed to substantiate and hence meet their burden to prove that
they operated a portion of their residence as a business.
Deducting the business portion of a dwelling unit is
restricted. For example, if personal use of the business portion
of a dwelling unit exceeds the greater of 14 days or 10 percent
9We find no merit in petitioners’ arguments concerning the
doctrines of “constructive receipt” or “origin of claim” to
characterize the transfer of the contract for deed as alimony.
10This general rule does not apply to those expenses that
are deductible regardless of any connection with a trade or
business, such as mortgage interest on the residence under sec.
163, real estate taxes under sec. 164, or casualty losses under
sec. 165. Sec. 280A(b).
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