is Pub 527 [2010] correct

[morrisliberty]

hello,
On page 23 of 2010 Pub 527 I quote Rented at least 15 days and personal use test is not met. If your personal use of your property is less than the greater of;
14 days or 10% of total days rented to others at fair rental price

The personal portion of expenses, including qualified mortgage interest,property taxes , and casualty losses [if any] will be reported as normally allowed on Schedule A{Form 1040}. The personal portion of the remaining rental expenses are not deductible because they are personal expenses. See worksheet 5-1 later


I believe qualified mortgage interest for the personal portion of the property is not deductible on Schedule A because if a residence is held out for rental at any time during the year, the dwelling is not considered a second home for purposes of the mortgage interest deduction on Schedule A unless it is used for personal purposes more than the greater of 14 days or 10% of the days the unit is rented at fair rental value. {See Reg 1.163-10 T

[3][iii]. The personal portion of qualified mortgage interest is therefore nondeductible on Schedule A. Where am I going wrong?

[henryclay]

Are you thinking about an election that can be made? See

Section 1.163-10T(p)(3) of the Income Tax Regulations provides that a qualified
residence includes a second residence. Section 1.163-10T(o)(5) provides that a
taxpayer may elect to treat any debt that is secured by a qualified residence as not
secured by the qualified residence. An election made under § 1.163-10T(o)(5) is
effective for the taxable year for which the election is made and for all subsequent
taxable years unless revoked with the consent of the Commissioner.

Absent that election, as stated in your quote, the qualified deductions on the dwelling would be carried to either Schedule A or Schedule E, depending on the ratio of personal use days to rental use days. Rental use days is generally defined as days the dwelling is available for rent, whether or not it is actually rented. Personal use days is generally defined as days when the property is not available for rent, whether or not any personal use is made of it on such days.

Remembering that your quote is specific about NOT meeting the personal use requirement, all qualified deductions would be allocated to Schedule E.

The example and worksheet/s following the source of your quote might be of some help in making the determination.

Other thoughts, anyone?

[morrisliberty]

hello,

Thank you for reply. I am not talking about election . Let me clarify.

I am trying to understand the relationship between Section 163{h}{3}{A} ,Section 163 {h] {3} {B], Section 163 {h} {3} {C},
section 163 {h}{3} {D}, section 163 {h} {4} {A} {i}{II},section 163{h}{4}{A}{iii}, and Section 280A{d}{1}. The way I read the code qualified residence interest on home acquisition and home equity debt in relationship to qualified residence in Section 163 which is defined in Sction 280A{d}{1] is not deductible on Schedule A because the home is not a qualified residence and therefore Pub 527 is incorrect when it writes the qualified mortgage interest is allowable on Schedule A per my previous message. The only exception is found in Section 163 {h]{4}{A}{iii] which is not what the IRS is talking about.

[henryclay]

You may be right, (correct). My only experience with anything like it was several , , several, , , years ago. One of my clients was audited after I used a provision in one of the publications for guidance. The auditor said the publications had to give way to the statute when there was a question of precise meaning. The client paid the extra tax, but was not sanctioned because the Pubilcation was a sufficient "reliable" source for the position taken on the return.

One of my current clients has two homes that they alternate using. He is an artist and she is an interior decorator. They put one house up for rent each April and the other one each October. Until now the personal use days has not been a problem and the expenses have been routinely split based on days of personal use, (Schedule A), business use, (office in home, 2 Schedule C's), and rental use, (Schedule E).

I think we are on solid ground, if "that" means anything. But your question will cause me to lose some more sleep.