Source: http://www.bna.com/Home-Office-Deductions-p7618/
Timestamp: 2015-04-27 17:05:36
Document Index: 225136139

Matched Legal Cases: ['§280', '§280', '§280', '§280', '§280', '§280', '§280', '§280', '§280', '§280', '§ 280', '§ 280', '§ 280', '§ 280', '§ 280', '§ 1034', '§ 121', '§ 121', '§ 280', '§ 183', '§ 469', '§ 465', '§ 163', '§ 67', '§ 68', '§ 280', '§ 280']

Home Office, Vacation Home, and Home Rental Deductions (Portfolio 547) | Bloomberg BNA
Home Tax & Accounting Home Office, Vacation Home, and Home Rental Deductions (Portfolio 547) PORTFOLIO
Home Office, Vacation Home, and Home Rental Deductions (Portfolio 547) Part of the U.S. Income Portfolios Library
Tax Management Portfolio, Home Office, Vacation Home, and Home Rental Deductions,
No. 547-3rd, describes the operation of §280A, which limits deductions attributable to the business and rental use of a dwelling unit if the property is also used by a taxpayer as a residence during the tax year. Section 280A is intended to prevent taxpayers from converting nondeductible personal expenses into deductible business expenses. Price: $400 Print
No. 547-3rd, describes the operation of §280A, which limits deductions attributable to the business and rental use of a dwelling unit if the property is also used by a taxpayer as a residence during the tax year. Section 280A is intended to prevent taxpayers from converting nondeductible personal expenses into deductible business expenses.
The Portfolio analyzes the scope and application of §280A, which applies generally to deductions allowable with respect to a
dwelling unit personally used by a taxpayer as a residence. A dwelling unit may be a house, apartment, condominium, mobile home, boat, or similar property with basic living accommodations. Section 280A also applies to other property, such as a garage, which is closely related to
the dwelling unit. Section 280A prescribes criteria for determining whether a taxpayer's use of a unit during the tax year is sufficient to trigger the section.
When it applies, §280A generally disallows home business and rental deductions. However, §280A carves out six statutory exceptions to the general disallowance rule. In particular, deductions are not prohibited by §280A for a portion of a dwelling unit used regularly and exclusively: (1) as the taxpayer's principal place of business for any business; (2) as a place where patients, clients, or customers regularly meet or deal with the taxpayer in the normal course of business; or (3) in the case of a separate structure not attached to the residence, “in connection with” the taxpayer's business. Deductions also are not prohibited by §280A for the regular (although not necessarily exclusive) use of a residence for certain storage uses, and for providing day care services. Finally, deductions attributable to the
rental use of a residence are not prohibited by §280A.
The standard for determining a “principal place of business” historically caused a significant amount of controversy among taxpayers, the IRS, and courts. This critical standard, one of the lynchpins of §280A, is analyzed in detail in this Portfolio. In Comr. v. Soliman, 113 S. Ct. 701
(1993), the Supreme Court enunciated two primary considerations for determining whether a home office constitutes a taxpayer's principal place of business: (1) the relative importance of the activities performed at each business location, and (2) the relative amount of time
spent at each location. A “principal place of business” also includes a
place used by a taxpayer to conduct substantial administrative or management activities, if the business has no other fixed location where
the taxpayer carries out administrative or management functions.
A taxpayer must allocate home expenses to the portion of the home used for the business activity. A taxpayer who rents a dwelling
unit or provides day care services also must allocate expenses based on
the amount of time the dwelling unit is used for the activity. A taxpayer may deduct expenses allowable under §280A and allocated to the business or rental use of a home only to the extent of gross income from
the business or rental activity. The gross income limitation prevents home business and rental expenses from creating or increasing a net loss
from the activity. Section 280A imposes a “tier system” for deducting expenses in cases in which the potential deductions exceed the deductions allowable under the gross income limitation.
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Robert W. Wood is a 1979 graduate of University of Chicago Law School, where he earned a Juris Doctor, won the Florence James Adams Prize and a University of Chicago Scholarship. He practices law with Wood & Porter in San Francisco, California, where he provides services to clients on a wide variety of state, federal, and international tax matters. Mr. Wood is admitted to practice law in California, New York, Arizona, Montana, Wyoming, Washington, Texas, and the District of Columbia. He is also qualified as a Solicitor in England
and Wales. Mr. Wood has been designated by the State Bar of California as a Certified Specialist in Taxation. He is a Fellow of the American College of Tax Counsel.
Mr. Wood is the author of more than 35 books in the field
of taxation, and has long been recognized as a leading authority and commentator. He is one of the foremost experts on the taxation of damage
awards and settlement payments, author of 522 T.M., Tax Aspects of Settlements and Judgments (BNA), and wrote the leading treatise in this area, Taxation of Damage Awards and Settlement Payments
(4th ed. Tax Institute ©
2009). Mr. Wood frequently serves as an adviser and expert witness on this unique area of the tax law. Mr. Wood is also the author of Qualified Settlement Funds and Section 468B (Tax Institute ©
2009), and Legal Guide to Independent Contractor Status (4th ed. Tax Institute © 2007). For a complete list of Mr. Wood's publications, please visit www.woodporter.com.
Detailed AnalysisI. IntroductionA. OverviewB. Legislative HistoryC. Structure of Section 280AII. Section 280A(a) Disallowance of Deductions Attributable to Business Uses of a HomeA. Home Expense Deductions Generally DisallowedB. Taxpayers Subject to Section 280A1. Generally2. Partnerships3. S Corporations4. TrustsC. Property Subject to Section 280A1. Dwelling Unita. Single Structure with Multiple Dwelling Unitsb. Appurtenant Propertyc. Hotel Exception(1) Property Regularly Available for Occupancy by Paying Customers(2) Personal Use Prohibited(3) Rental Pools2. Residencea. General Rule for a Residenceb. Exception for Qualified Rental of Principal Residence(1) â€œPrincipal Residenceâ€ Defined(2) Difference Between â€œPrincipal Residenceâ€ and â€œResidenceâ€(3) Portion of Unit Not Used as Principal Residence(4) Involuntary Conversion of Principal Residencec. Separate StructureD. Personal Use that Subjects a Taxpayer to § 280A Disallowance Rule1. Use by Taxpayer2. Personal Use - Attribution Rulesa. Use by Co-Ownerb. Use by Family Membersc. Reciprocal Arrangements - Unit Swappingd. Bargain Rentalse. Time Sharing and Rental Pool Use(1) Time Sharing Arrangements(2) Rental Pools(3) Rental Pool Averaging Electionf. Personal Use from Charitable Donation of Use of Dwelling Unitg. Personal Use by Pass-Through Entity3. Exceptions to Attribution Rulesa. Rental at Fair Valueb. Shared Equity Financing Agreement4. Excluded Uses: Holding for Rent, Repair and Maintenance5. Documenting Personal UseIII. Exceptions to § 280A Disallowance RuleIntroductory MaterialA. Exception for Expenses Deductible Regardless of Business Use of HomeB. Exception for Certain Business Use of Home1. Trade or Business Requirementa. Multiple Businessesb. Investment Activity2. Regular Use3. Exclusive Usea. De Minimis Personal Useb. Dedicated Roomc. Separately Identifiable Spaced. All Uses Must Qualify4. Qualifying Uses that Must Be Regular and Exclusivea. Principal Place of Business(1) Multiple Businesses(2) Administrative or Managerial Activities as a Principal Place of Business(3) Principal Versus Secondary Place of Business(a) Pre-1976 Law(b) Prior Law: Focal Point Test(c) Soliman v. Comr.(i) Lower Court Decisions(ii) Supreme Court Opinion(iii) IRS Response to Soliman(iv) Scope of the Soliman Decision(v) Post-Soliman Decisions(d) 1997 Amendment to § 280A - Overruling Soliman on Its Factsb. Place for Meeting or Dealing with Patients, Clients or Customers5. Separate Structure Not Attached to Dwelling Unit6. Qualifying Uses That Must Be Regular, But Need Not Be Exclusivea. Certain Storage Use of Homeb. Day Care Services(1) General Requirements(2) Special Rule for Allocation of Day Care Expenses7. Restriction on Employee's Ability to Deduct Home Business Expensesa. Convenience of the Employer Requiredb. Rental to EmployerC. Exception for Rental Use of Home or Vacation Home1. The Requirement of Personal Use Applied to Rental Units2. Taxpayer Must Charge Fair Rental3. Allocation of Expenses Between Business and Personal Usea. Items Included in Rental Expensesb. Rental Expense Allocation Formulac. Expenses Allocable to Renting a Portion of Unit4. Rental Expenses and the Gross Income Limitationa. Gross Rental Incomeb. Exception for Qualified Rental Period of a Principal Residence5. Special Rule for De Minimis Home RentalIV. Additional Requirements for Expenses Allowable Under § 280AIntroductory MaterialA. Expenses Must Be Allowed with Respect to a Dwelling UnitB. Expenses Must Be Allocated Between Business and Personal Use1. Direct Expenses2. Indirect Expenses3. Unrelated ExpensesC. Gross Income Limit: The â€œTier Systemâ€ of Priority for Deducting Home Business Expenses1. Tier 1 - Otherwise Allowable Deductions: Interest, Taxes, Casualty Losses, etc.2. Tier 2 - Activity Expenses Not Related to Home Use3. Tier 3 - Operating Expenses Less Than Gross Income4. Tier 4 - Depreciation Less Than Gross Income5. ExamplesD. Expense of First Telephone Line into Home Not DeductibleE. Coordination with Trade or Business Travel ExpenseV. Disposition of Property for which Expenses under § 280A Have Been DeductedIntroductory MaterialA. Bifurcation Requirement for Dual-Use PropertyB. Sale of Principal Residence1. Business Usea. Prior Law - Former § 1034b. Current Law - § 121(1) Exclusion of Gain(2) Recognition of Depreciation Taken After May 6, 19972. Rental Usea. Interaction with § 121b. Bargain Rentalc. Gain or Loss from Rental UnitVI. Interaction of § 280A with Other Code ProvisionsA. Interplay with § 183 Hobby Loss RuleB. Interplay with § 469 Passive Activity Loss RulesC. Interplay with § 465 At-Risk LimitsD. Interplay with § 163(h) Limitation on Home Mortgage Interest DeductionE. Effect of § 67 Floor Under Miscellaneous Itemized Deductions and § 68 Overall Limit on Itemized DeductionsF. Section 280A Does Not Limit Business Travel DeductionsVII. ComplianceA. Heavy Burden on Taxpayer to Establish § 280A DeductionsB. Home Business Deductions by EmployeesC. Home Business Deductions by Self-Employed PersonsD. Home Rental Deductions
Working PapersTable of WorksheetsWorksheet 1 Committee Reports Excerpts on § 280A - Business Use of Home; Vacation HomesWorksheet 2 [Reserved]Worksheet 3 [Reserved]Worksheet 4 [Reserved]Worksheet 5 [Reserved]Worksheet 6 Illustrative Shared Equity Financing AgreementWorksheet 7 Illustrative Letter Regarding Convenience of EmployerWorksheet 8 Illustrative Residential Lease Involving Business Use of HomeWorksheet 9 Illustrative Contract for Goods or ServicesWorksheet 10 Illustrative Independent Contractor AgreementBibliographyOFFICIALInternal Revenue Code:Public Laws:Legislative History:Treasury Regulations:Treasury Rulings:Cases:UNOFFICIALTax Service:Periodicals:Pre-1985198519861987198819891990199119921993199419961997199819992000200120022003