## Facts

- Dorance D. and Helen A. Bolton owned a vacation home in Palm Springs, California.
- In 1976, the home was rented for 91 days, used personally for 30 days, and unoccupied for 244 days.
- The Boltons paid $2,854 in mortgage interest, $621 in property taxes, and $2,693 in maintenance expenses (excluding interest and taxes).
- The property generated $2,700 in gross rental income for 1976.
- The IRS determined deficiencies by limiting deductions under I.R.C. § 280A using an allocation method the Boltons disputed.
- The Tax Court ruled for the Boltons, and the Commissioner appealed.

## Issues

1. Under I.R.C. § 280A, what method governs allocation of mortgage interest and property taxes between rental and personal use for a mixed-use vacation home?
2. Whether § 280A(e)’s “days rented ÷ days used” ratio applies to interest and taxes when applying the § 280A(c)(5) gross-rental-income limitation.

## Decision

- The Ninth Circuit affirmed the Tax Court’s decision for the Boltons.
- The court held § 280A(e)’s “days rented ÷ days used” allocation is directed at maintenance-type expenses “attributable to rental,” not mortgage interest and property taxes.
- For purposes of § 280A(c)(5)’s income limitation, the court approved allocating interest and taxes on a time basis consistent with their daily accrual (effectively using days rented ÷ days in year).
- The Commissioner’s attempt to apply the § 280A(e) ratio broadly to interest and taxes was rejected.

## Legal Principles

- I.R.C. § 280A limits deductions for expenses related to a dwelling unit used as a residence, allowing specified exceptions and subjecting rental-related deductions to a gross-income cap.
- Section 280A(e) provides an allocation rule keyed to “days actually rented” over “days used,” and operates as a computation for maintenance-type expenses attributable to rental use.
- Mortgage interest and property taxes fall within § 280A(b) as expenses otherwise deductible without regard to rental use, and they may require allocation under § 280A(c)(5) when applying the gross-rental-income limitation.
- In applying § 280A(c)(5), a time-based allocation for interest and taxes may be reasonable because those liabilities accrue daily regardless of whether the property is actually used.

## Conclusion

The Ninth Circuit affirmed that § 280A(e)’s use-based ratio governs allocation of maintenance expenses, but interest and property taxes may be allocated on a time-accrual basis when applying § 280A(c)(5)’s limitation that rental-use deductions not exceed gross rental income.


Bolton v. Commissioner, 694 F.2d 556 (9th Cir. 1982)