Bed and Breakfast Owner's Deductions Were Disallowed - Rogers Wood Hill Starman & Gustason

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Bed and Breakfast Owner’s Deductions Were Disallowed

Posted by Kim Chen on May 24th, 2017

The taxpayer held a 50% interest in an LLC (a partnership for tax purposes) that owned and operated a bed and breakfast house in Indiana. After several years of unprofitability, the property was listed for sale while caretakers resided at and maintained it. During that time, the taxpayer made several trips from his home in Alaska to the Indiana property. For each trip, he stayed all but a day or two at the Indiana property. On the tax returns for the years at issue, the LLC deducted all of the expenses related to the Indiana property, including the taxpayer’s travel expenses. After the IRS disallowed the expenses, the taxpayer argued that his presence at the Indiana property was necessary so he could perform repairs and maintenance. The Tax Court sided with the IRS because the taxpayer failed to show that he actually engaged in repairs and maintenance substantially full time during his time there or that the need to perform repairs and maintenance was the primary purpose of his trips. Christopher R. Cooke, TC Memo 2017-74 .