Dorance D. And Helen A. Bolton v. Commissioner of Internal Revenue

This appeal from the United States Tax Court presents a question involving the interpretation of statutes governing deductibility of expenses incurred in the rental of a vacation home. Dorance and Helen Bolton (taxpayers) owned a vacation home in Palm Springs, California. In 1976, taxpayers rented the unit for 91 days, used it personally for 80 days, and left it unoccupied for 244 days. During that year, taxpayers made interest payments totalling $2,854 and paid property taxes of $621. In addition, taxpayers incurred $2,693 in maintenance expenses (excluding taxes and interest). Taxpayers received $2,700 gross rents from the unit in 1976.

I.R.C. § 280A, enacted in 1976, limits a taxpayer’s business deductions for expenses incurred with respect to a dwelling unit if that unit was used as a personal residence during the tax year. If § 280A applies, as it does in this case, a general rule is invoked that no business deductions are allowable with respect to the unit. The statute, however, provides several exceptions. Section 280A(b) provides that non-business expenditures otherwise deductible (i.e. taxes, interest, and casualty losses) are not barred by the statute. Further, §…