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Tax Court method to allocate interest and taxes

See original discussion at http://www.taxalmanac.org/index.php/Discussion:Tax_Court_method_to_allocate_interest_and_taxes

My tax software includes a question in the Schedule E questionnaire that asks "use the tax court method to allocate interest and taxes"?

I'm not sure what this refers to ? I assume it is a specific method for breaking up the allocation by square footage when the rental property is owner occupied. Or am I off base here?

( Asked 05/13/11 07:20 PM in TaxAlmanacViews by community 109 )

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Search "Bolton".

This refers to allocation of interest and taxes on a mixed-use (rental with personal use) property.

( Answered 05/13/11 07:38 PM in TaxAlmanac ,Views by community 109 )

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They are two different methods of computing the percentage by which to multiply certain expenses (mortgage interest and real estate taxes). The tax court method allocates those expenses over the entire year. The IRS method allocates those expenses just over the period the property is available for rent and the days it is rented at fair market value. In many situations, the tax court method is more beneficial to the taxpayer since they deduct a smaller amount of the interest/taxes on Schedule E and the remainder goes to Schedule A.

This applies to vacation homes when the person has both personal and rental use of property. When this happens, you deduct various expenses over three stages. Once the income is reduced to zero, you can no longer deduct the expenses in the current year.

See these prior discussions:

( Answered 05/13/11 07:41 PM in TaxAlmanac ,Views by community 109 )

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