Bolton v. Commissioner

Dorance and Helen Bolton (plaintiffs) owned a vacation home. In 1976 the Boltons used their vacation home for 30 days, rented it for 91 days, and left it empty for 244 days. Section 280A of the Internal Revenue Code allowed taxpayers to deduct nonbusiness expenses for the use of a personal residence. To comply with the statute, taxpayers had to allocate allowable deductions between rental and personal use. Section 280A(e) required taxpayers to calculate the share of maintenance expenses that were related to renting the property according to the following ratio: the number of days the property is rented divided by the total number of days the property is used, which for the Boltons would be 91 over 121. Section 280A(c)(5) limited the total deductions for renting the property to the gross rental income that the taxpayers earned that year and gave required allocations of nonmaintenance-expense deductions for the property between rental and nonrental use. The Boltons allocated their deductions by using a ratio of the number of days they rented their property divided by the number of days in the year, or 91 over 365. The Commissioner of Internal Revenue (the Commissioner) (defendant) disagreed with the Boltons’ method of allocation. The Commissioner asserted that the correct ratio was the one from § 280A(e), in this case 91 over 121. The United States Tax Court reversed the Commissioner, finding that the Boltons had correctly allocated their expenses. The tax court reasoned that expenses like property tax and interest on mortgage loans accrue daily, not just when the property is being actively used. The tax court further determined that the statutory language of 280A(e)—which notes that it does not apply to other, nonmaintenance expenses—and legislative intent to allow taxpayers to allocate personal and business uses of rental property supported its reading of the statute over the Commissioner’s interpretation. The Commissioner appealed.