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Synopsis:
An Alaskan lawyer (and a partner) purchased a property in Indiana in 2007 and operated it as a B&B until Jan 2010. Sold property in 2011, but took business expenses on 2010 and 2011 tax returns.
Stayed at the property 26 nights in 2010 and 33 nights in 2011 (exceeding the threshold for personal use days both years). Claimed the stays at the property were necessary to conduct repairs and maintenance on the property, but had no documentation or other evidence to support this claim. (Days spent working on the property do not count as personal use days.)
Tax Court rules the lawyer did not prove he stayed at the property for business purposes, rules the property was "personal use property" in 2010 and 2011, and disallows all business-related expenses for the property on his tax returns for 2010 and 2011. He owes $42,606 in taxes for 2010 and $38,157 in taxes for 2011 - PLUS a 20% accuracy-related penalty for both years.
Link to Full Tax Court Memo: http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11197
The moral of the story is to keep good records. These are not passive losses carried forward. These losses were disallowed, costing our friend the lawyer quite a lot of cabbage.
An Alaskan lawyer (and a partner) purchased a property in Indiana in 2007 and operated it as a B&B until Jan 2010. Sold property in 2011, but took business expenses on 2010 and 2011 tax returns.
Stayed at the property 26 nights in 2010 and 33 nights in 2011 (exceeding the threshold for personal use days both years). Claimed the stays at the property were necessary to conduct repairs and maintenance on the property, but had no documentation or other evidence to support this claim. (Days spent working on the property do not count as personal use days.)
Tax Court rules the lawyer did not prove he stayed at the property for business purposes, rules the property was "personal use property" in 2010 and 2011, and disallows all business-related expenses for the property on his tax returns for 2010 and 2011. He owes $42,606 in taxes for 2010 and $38,157 in taxes for 2011 - PLUS a 20% accuracy-related penalty for both years.
Link to Full Tax Court Memo: http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11197
The moral of the story is to keep good records. These are not passive losses carried forward. These losses were disallowed, costing our friend the lawyer quite a lot of cabbage.
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