Rental/Vacation Home Case Essay

1340 Words Apr 28th, 2014 6 Pages
Tax Case 3
Individual Paper
2/22/2014

Attn: Dr. Ott

Executive Summary:
In this case, my group members represented the side of the taxpayer. One of the main issues in this case is whether or not Rex and Agnes Harrell should be able to make deductions in excess of rental income on their beach house. This deduction depends on if the 14-day personal use provision was exceeded. If the 14-day provision was exceeded than income should be limited to rental income as the ISR decided in this case. However, we have determined that the Harrell’s have not violated the 14-day provision and should therefore be allowed deductions for rental expenses exceeding rental income.

Facts:
• The Harrell’s purchased a beach house to use occasionally
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The log maintained by the couple indicates that the couple used 14 guaranteed personal days. If even 1 out of the 28 days that the couple partially or fully worked on the house is considered a personal day than the 14-day provision is violated. However, if none of those days turn out to be considered personal days then the loss in excess over rental income can be deducted according to section 280A. Section 183(a) permits no allowable deductions for activities not found to be engaged in for profit. However, we found that the Harrell’s activities are found to be engaged in for profit and should therefore be allowed these deductions.

Authoritative Support:
Section 280A was issued in response to the public concern that taxpayers were only renting their vacation homes to deduct personal expenses that would be otherwise nondeductible. This statute provides a two part limitation on the expenses that can be deducted relating to a vacation home. The first limitation has to be done if the home is used for personal purposes during any part of the year and results in separating deductible rental expenses from nondeductible personal expenses according to section 280A(e)(1). This limitation is equal to the product of the total expenses and the number of days rented at fair value/the total number of days used for any purpose. As decided by the

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