77 T.C. 104">*105 OPINION

The Commissioner determined1981 U.S. Tax Ct. LEXIS 95">*97 an $ 859 deficiency in petitioners' 1976 income tax. After concessions, the only remaining issue is the amount of deductions allowable in accordance with section 280A, I.R.C. 1954, with respect to maintenance expenses, exclusive of interest and property taxes, on petitioners' Palm Springs vacation home. The answer depends upon the amount of interest and property taxes allocable to the rental use of the property under section 280(A)(c)(5)(B). The case was submitted on the basis of a stipulation of facts.

At the time of the filing of their petition herein, petitioners were residents of Palm Desert, Calif.

During 1976, petitioners owned a rental unit (hereinafter sometimes referred to as the unit or the property) in Palm Springs, Calif. This unit was acquired by petitioners in 1974 for rental use, personal use, and appreciation. The property was sold at a substantial profit in 1977.

The parties have stipulated that in 1976, the unit was "rented out" for 91 days, used personally by petitioners for 30 days, and was unoccupied for 244 days. ¹ Petitioners did not actively advertise the unit, solicit potential tenants, or list the property with real estate brokers during the period1981 U.S. Tax Ct. LEXIS 95">*98 that it was unoccupied in 1976. The unit was not held out for rent during the 244 days it was unoccupied in 1976 because of the following factors: (a) It was either rented or used personally by the petitioners during the period which petitioner Dorance D. Bolton regarded as the prime rental season for property in Palm Springs, Calif., and (b) he was reluctant to place the unit with a commercial leasing agency (commonly referred to as a rental pool) because he was apprehensive over losing control with respect to the quality of potential tenants.

The petitioners made interest payments in the amount of 77 T.C. 104">*106 $ 2,854 and paid property taxes in the amount of $ 621 with respect to the unit during 1976.

On their 1976 joint income tax return, petitioners reported the receipt of $ 2,700 in gross rents from the unit. This amount was fully offset by reported expenses for the property, 1981 U.S. Tax Ct. LEXIS 95">*99 exclusive of depreciation, and their return accordingly reflected no net income therefrom.

In computing their rental income from the property on Schedule E, the petitioners deducted 25 percent of both the interest ($ 713) and the property taxes ($ 155) paid with respect to the property from the gross rents which they received from the property. In determining the amounts of interest and taxes allocable to the rental use, as required by section 280A(c)(5)(B), the petitioners utilized a fraction in which the numerator was the number of days in 1976 that the property was rented (91) and the denominator was the number of days in a year (365). That fraction was approximately equal to the rounded figure of 25 percent used by petitioners. ²1981 U.S. Tax Ct. LEXIS 95">*100 The net effect of this computation was to permit the deduction of repair and maintenance expenses of $ 1,832, after application of section 280A(e)(1). ³ The petitioners deducted the balance of the interest payments ($ 2,141) and property taxes ($ 466) as itemized deductions.

The Commissioner determined that the property was used for rental purposes 75 percent of the total days it was used during the year, i.e., 91 out of a total of 121 days of occupancy. The Commissioner therefore allocated 75 percent of the interest and taxes, $ 2,140 and $ 466, respectively, to the rental use of the Palm Springs property, in applying section 280A(c)(5)(B), and allowed the remaining 25-percent of interest and taxes as itemized deductions. These adjustments in the allocation of interest and taxes effectively reduced the total 77 T.C. 104">*107 amount of deductions for repairs, maintenance, 1981 U.S. Tax Ct. LEXIS 95">*101 and other expenses ⁴ which could be taken against the rental income of the property under section 280A, I.R.C. 1954, with the net effect of a $ 1,739 increase in petitioners' 1976 taxable income.

Section 280A, ⁵ originally enacted as part of the Tax Reform 77 T.C. 104">*108 Act of 1976 (Pub. L. 94-455, sec. 601, 90 Stat. 1520), is a response to congressional concern that rental of property used by the taxpayer as a residence afforded the taxpayer unwarranted opportunities to obtain deductions for expenses of a personal nature. In the case of vacation homes, the relevant congressional committee reports express the view that rental activities were frequently undertaken merely to defray the cost of maintaining a vacation home for the taxpayer's personal use, rather than for the purpose of making a profit. Although section 183, I.R.C. 1954, could generally have been expected to apply to such rentals 1981 U.S. Tax Ct. LEXIS 95">*102 of vacation homes as activities not engaged in for profit, thereby limiting deductions with respect to maintenance of a vacation home to the amount of gross income received from its rental, Congress was concerned that section 183 and the related regulations did not provide sufficiently specific rules as to the degree of personal use of a vacation home which would result in its rental being classified as an activity not engaged in for profit. H. Rept. 94-1515, 94th Cong., 2d Sess. 436 (1976); S. Rept. 94-938, 94th Cong., 2d Sess. 150-152 (1976); H. Rept. 94-658, 94th Cong., 1st Sess. 162-164 (1975). Section 280A was thus intended to provide "definitive rules * * * to specify the extent to which personal use [of a vacation home] would result in the disallowance of certain deductions in excess of gross income" from the property. S. Rept. 94-938, supra at 152; H. Rept. 94-658, supra at 164.

1981 U.S. Tax Ct. LEXIS 95">*103 Section 280A(a) states the general rule that, "Except as otherwise provided" in that section, no deduction is allowable 77 T.C. 104">*109 "with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence." ⁶ However, subsection (b) does "otherwise provide" to exclude such items as interest and taxes from subsection (a), and subsection (c)(3) excludes from subsection (a) any item which is attributable to the rental of the unit. But the amount of deduction permitted under subsection (c)(3) is explicitly required to be determined in the first instance by applying the provisions of subsection (e), and deduction of the amount thus determined is further limited by the provisions of subsection (c)(5).

1981 U.S. Tax Ct. LEXIS 95">*104 In attempting to thread our way through the tortuous path of these exasperatingly convoluted provisions, we must first make the preliminary computation under subsection (e). That subsection is captioned "Expenses Attributable to Rental," and paragraph (1) thereof states that the amount deductible shall not exceed an amount which bears the same relationship to the rental expenses as the number of days the unit is rented at a fair rental bears to the total number of days during the year that the unit is used. ⁷1981 U.S. Tax Ct. LEXIS 95">*105 In this case, that relationship is represented by the fraction 91/121 which the parties have treated as being equal to the rounded figure of 75 percent. However, paragraph (2) of subsection (e) provides in substance that subsection (e) shall not apply to deductions which would be allowable in any event (e.g., interest and taxes) regardless of whether the unit were rented. Accordingly, applying the 75 percent figure to the total expenses of the rental property (other than interest and taxes) as reported by petitioners ($ 2,693) ⁸ we arrive at a tentative deduction of $ 2,020 under sections 280A(e)(1) and 280A(c)(3).

77 T.C. 104">*110 We therefore turn at once to the final and pivotal limiting terms of section 280A(c)(5), which provides:

(5) Limitation on Deductions. -- In the case of a use * * * described in paragraph (3) where the dwelling unit is used by the taxpayer during the taxable year as a residence, the deductions allowed under this chapter for the taxable year by reason of being attributed to such use shall not exceed the excess of --

(A) the gross income derived from such use for the taxable year, over

(B) the deductions allocable to such use which are allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was so used.