Disallowance of Certain Expenses under § 280A

General Rule

A taxpayer who is an individual or S corporation may not deduct expenses in connection with the “use of a residence,” except as otherwise provided in I.R.C. § 280A.  § 280A(a)

What is a dwelling “used as a residence”?

For purposes of I.R.C. § 280A, a taxpayer uses a dwelling (house, apartment, condominium, etc.) as a residence during the taxable year if he or she uses the unit (or a portion thereof) for personal purposes for more than the greater of: (A) 14 days; or (B) 10% of the number of days during the year for which the unit is rented at a fair rental.  § 280A(d)(1)

A unit is not rented at a fair rental on any day on which the unit is used for personal purposes.  I.e., days on which you use the unit as a rental are not counted as rental days.  § 280A(d)(1)

It is “personal use” (that is not counted as rental use) when the unit is used:

  1. by the taxpayer or someone else who has an interest in the unit, or by any member of the family of such person;
  2. by an individual under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or
  3. by any individual unless for such day the unit is rented for a rental that is a fair rental.

So, any use is “personal use” unless you receive a fair rental.  § 280A(d)(2)

It is not “personal use” when the unit is used:

  1. by someone who pays a fair rental amount (see above);
  2. by the taxpayer if the taxpayer is engaged in repair or maintenance on a substantially full time basis for any day even if other individuals are on the premises on such day;
  3. [Are all uses “personal use” when not rented and not used as in 1. and 2. above?]

A rental day does not include any day during which the unit is merely held out for rental but is not occupied.  Standard Federal Tax Reporter (2013)

“If the vacation home is rented for 15 or more days during the tax year and it is used by the taxpayer for personal purposes for the greater of (a) more than 14 days or (b) more than 10 percent of the number of days during the year for which the home is rented, the deductions attributable to the rental activity are limited. In such a case, the amount of the rental activity deductions may not exceed the amount by which the gross income derived from the rental activity exceeds the deductions otherwise allowable for the property (e.g., interest and taxes).”  Standard Federal Tax Reporter (2013), 14,858.023

Deduct How Much?

Under I.R.C. § 280A(e), where an individual or S corporation uses the unit for personal purposes (whether or not he or she is treated under this section as using the unit as a residence), the amount deductible under this chapter (“Normal Taxes and Surtaxes” chapter) with respect to expenses attributable to the rental of the unit for the taxable year may not exceed an amount that bears the same relationship to such expenses as the number of days during each year that the unit (or portion of the unit) is rented at a fair rental bears to the total number of days during the year that the unit (or portion thereof) is used.

Therefore, to determine the percentage of total expenses attributable to the rental unit that may be deducted, one must determine the percentage of days the unit is rented to the total number of days the unit is “used.”

Catch-All Provision:

If the unit is used for any period by the taxpayer as a residence and the unit is actually rented for less than 15 days during the taxable year, then no deduction is allowed because of the rental use of the unit, and the income from the unit is not included in the gross income of the taxpayer.  § 280A(g)

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